-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LEMQA3m1KZ3Z3PB5vP6YEcxdP9hvMGg7z+uWirn7QCnvAy5pScfQ7B2HDBidzGgx WQghuDLP7byHcYmwfcdtmw== 0000950144-99-004006.txt : 19990405 0000950144-99-004006.hdr.sgml : 19990405 ACCESSION NUMBER: 0000950144-99-004006 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19990402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORIENTAL FINANCIAL GROUP INC CENTRAL INDEX KEY: 0001030469 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 660538893 STATE OF INCORPORATION: PR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-75609 FILM NUMBER: 99586660 BUSINESS ADDRESS: STREET 1: HATO REY TOWER STE 503 STREET 2: 268 MUNOZ RIVERA AVENUE CITY: HATO REY STATE: PR ZIP: 00918 BUSINESS PHONE: 7877661986 MAIL ADDRESS: STREET 1: HATO REY TOWER STE 503 STREET 2: 268 MUNOZ RIVERA AVENUE CITY: HATO REY STATE: PR ZIP: 00918 S-3 1 ORIENTAL FINANCIAL GROUP, INC. 1 As filed with the Securities and Exchange Commission on April 2, 1999 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ORIENTAL FINANCIAL GROUP INC. (Exact name of Registrant as specified in its charter) ----------------------------- COMMONWEALTH OF PUERTO RICO 66-0538893 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) HATO REY TOWER, SUITE 501 268 MUNOZ RIVERA AVENUE SAN JUAN, PUERTO RICO 00918 (787) 766-1986 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ----------------------------- JOSE ENRIQUE FERNANDEZ CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER HATO REY TOWER, SUITE 501 268 MUNOZ RIVERA AVENUE SAN JUAN, PUERTO RICO 00918 (787) 766-1986 (Name, address, including zip code, and telephone number, including area code, of agent for service) ----------------------------- COPIES TO: CARLOS O. SOUFFRONT JAVIER D. FERRER IVAN G. MARRERO EDUARDO J. ARIAS MCCONNELL VALDES PIETRANTONI MENDEZ & ALVAREZ LLP 250 MUNOZ RIVERA AVENUE BANCO POPULAR CENTER, SUITE 1901 SAN JUAN, PUERTO RICO 00918 209 MUNOZ RIVERA AVENUE (787) 250-5672 SAN JUAN, PUERTO RICO 00918 (787) 274-4918 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
========================================================================================================================== PROPOSED MAXIMUM TITLE OF SECURITIES AGGREGATE AMOUNT OF TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------------- Noncumulative Monthly Income Preferred Stock, Series A, $1.00 par value per share $35,125,000 $9,764.75 ==========================================================================================================================
1. Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o). THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 2 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED APRIL 2, 1999 PROSPECTUS 1,225,000 Shares ORIENTAL FINANCIAL GROUP INC. % NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A PRICE TO PUBLIC: $25 PER SHARE Oriental Financial Group is offering to the public 1,225,000 shares of its % Noncumulative Monthly Income Preferred Stock, Series A. The Series A Preferred Stock has the following characteristics: - Annual dividends of $ per share, payable monthly, if declared by the board of directors. Missed dividends never have to be paid. - Redeemable at Oriental Financial Group's option beginning on , 2004. - No mandatory redemption or stated maturity. There is currently no public market for the Series A Preferred Stock. The New York Stock Exchange has approved for listing the Series A Preferred Stock under the symbol "OFGPrA." INVESTING IN THESE SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
Per Share Total Public Offering Price .............................................. $ 25.00 $30,625,000 Underwriting Discounts ............................................. $ 0.7875 $ 964,688 Proceeds to Oriental Financial Group ............................... $24.2125 $29,660,312
Oriental Financial Group has also granted the underwriters an over-allotment option to purchase up to 180,000 additional shares. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR COMMONWEALTH OF PUERTO RICO SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. Santander Securities Keefe, Bruyette & Woods, Inc. The date of this prospectus is April , 1999 3 TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUMMARY.....................................................................3 RISK FACTORS...........................................................................7 Dividends Will Not be Paid Unless Declared by the Board of Directors.......................................................7 Missed Dividends Never Have to be Paid................................................7 Banking Regulations May Restrict Oriental Financial Group's Ability to Pay Dividends.......................................................................7 Fluctuations in Interest Rates May Hurt Oriental Financial Group's Business.............................................7 Oriental Financial Group is at Risk Because its Business is Conducted in Puerto Rico.....................................................................7 Oriental Financial Group's Business Would be Disrupted if its Computer Systems Cannot Work Properly with Year 2000 Data............................................................................8 FORWARD-LOOKING STATEMENTS.............................................................8 USE OF PROCEEDS........................................................................9 CAPITALIZATION........................................................................10 SELECTED FINANCIAL DATA...............................................................11 SUMMARY OF CERTAIN TERMS OF THE SERIES A PREFERRED STOCK.....................................................................13 DESCRIPTION OF CAPITAL STOCK..........................................................20 TAXATION..............................................................................21 UNDERWRITING..........................................................................30 WHERE YOU CAN FIND MORE INFORMATION...........................................................................31 LEGAL MATTERS.........................................................................32 EXPERTS...............................................................................32
------------- Prospective investors may rely only on the information incorporated by reference or contained in this prospectus. Neither Oriental Financial Group nor any underwriter has authorized anyone to provide prospective investors with information different from that incorporated by reference or contained in this prospectus. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is correct only as of the date of this prospectus, regardless of the time of the delivery of this prospectus or any sale of these securities. 2 4 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus, including the information incorporated by reference into this prospectus and the "Risk Factors" section beginning on page 7. Unless otherwise stated, all information in this prospectus assumes that the underwriters will not exercise their over-allotment option to purchase any of the 180,000 shares subject to that option. THE COMPANY Oriental Financial Group is a bank holding company headquartered in San Juan, Puerto Rico, subject to regulation and supervision by the Federal Reserve Board. At December 31, 1998, Oriental Financial Group had $3.585 billion of total financial assets owned, managed or gathered. The total financial assets consist of $1.458 billion of assets owned and $1.314 billion of trust assets managed by Oriental Bank and Trust, and $813.3 million of customer investment assets gathered by Oriental Financial Services Corp. As a diversified financial institution, Oriental Financial Group provides a wide range of financial services to retail and institutional clients. Oriental Financial Group's core businesses are mortgage banking, trust and money management services, financial planning and securities brokerage services, and a full range of consumer lending and banking services provided through its network of twenty branches located throughout Puerto Rico. Oriental Financial Group's principal offices are located at Hato Rey Tower, Suite 501, 268 Munoz Rivera Avenue, San Juan, Puerto Rico 00918, and its telephone number is (787) 766-1986. Oriental Financial Group maintains a website at http://www.orientalfinancial.com. 3 5 THE OFFERING Series A Preferred Stock Offered...................................... 1,225,000 shares; 1,405,000 shares if the underwriters exercise their over-allotment option in full. Offering Price ...................................... $25 per share. Liquidation Preference............................... If Oriental Financial Group is liquidated or dissolved, you will be entitled to receive $25 per share plus accrued dividends for the current month from any assets available for distribution. You will be paid before any of Oriental Financial Group's assets are distributed to holders of common stock or any stock ranking junior to the Series A Preferred Stock. Dividends............................................ Dividends will be paid on the last day of each month beginning on , 1999. The board of directors must approve each dividend payment and any payment it does not approve never has to be paid. The annual dividend rate is equal to % of the liquidation preference per share. No Voting Rights..................................... You will not have any voting rights, except as described on page 16 of this prospectus. Redemption at Oriental Financial Group's Option............................................. Series A Preferred Stock may be redeemed beginning on , 2004 at Oriental Financial Group's option. Redemption prices are discussed on page 14 of this prospectus. No Maturity Date or Mandatory Redemption............................... The Series A Preferred Stock does not have a maturity date. Oriental Financial Group is not required to provide for the retirement of the Series A Preferred Stock by mandatory redemption or sinking fund payments. Rank................................................. The Series A Preferred Stock ranks senior to the common stock of Oriental Financial Group. Oriental Financial Group may not issue preferred stock ranking senior to the Series A Preferred Stock without the approval of holders of at least two-thirds of the Series A Preferred Stock. New York Stock Exchange Symbol............................................. OFGPrA
4 6 SUMMARY FINANCIAL AND OPERATING DATA You should read the summary financial information presented below together with Oriental Financial Group's consolidated financial statements and notes which are incorporated by reference into this prospectus and with the historical financial information of Oriental Financial Group included under "Selected Financial Data" beginning on page 11 of this prospectus. The return on average assets ratio is computed by dividing net income by average total assets for the period. The return on average equity ratio is computed by dividing net income by average stockholders' equity for the period. Both ratios have been computed using month-end averages. The ratios for the six-month periods ended December 31, 1998 and 1997, have been presented on an annualized basis.
SIX MONTH PERIOD ENDED DECEMBER 31, YEAR ENDED JUNE 30, ------------------------ ------------------------------------------------------------------- 1998 1997 1998 1997 1996 1995 1994 ------------------------ ------------------------------------------------------------------- (Dollars in thousands, except per share data) OPERATING RESULTS AND DIVIDENDS: Net Income..................... $ 12,426 $ 10,153 $ 21,410 $ 16,562 $ 14,736 $ 12,107 $ 9,827 Cash Dividends Paid Per Share.......................... $ 0.23 $ 0.19 $ 0.41 $ 0.33 $ 0.23 $ 0.13 $ 0.08 PERIOD END BALANCES: Bank Assets Owned.............. $1,457,500 $1,202,600 $1,311,400 $1,068,600 $ 877,400 $ 744,400 $ 655,000 Trust Assets Managed........... $1,313,800 $1,120,700 $1,310,000 $1,088,600 $ 874,500 $ 699,000 $ 545,400 Broker-Dealer Customer Assets Gathered................ $ 813,300 $ 560,600 $ 741,400 $ 524,900 $ 293,100 $ 195,400 $ 153,200 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Financial Assets......... $3,584,600 $2,833,900 $3,362,800 $3,197,800 $2,446,300 $1,911,700 $1,507,300 ========== ========== ========== ========== ========== ========== ========== Stockholders' Equity........... $ 110,772 $ 101,292 $ 107,030 $ 89,394 $ 79,903 $ 69,705 $ 55,684 SELECTED RATIOS: Return on Average Assets....... 1.79% 1.73% 1.74% 1.84% 1.82% 1.77% 1.68% Return on Average Equity....... 21.73% 21.09% 21.24% 21.17% 19.30% 19.05% 26.52%
5 7 CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS The ratios shown below measure Oriental Financial Group's ability to generate sufficient earnings to pay the fixed charges or expenses of its debt and preferred stock dividends. The ratios of earnings to combined fixed charges and preferred stock dividends were computed by dividing earnings by combined fixed charges and preferred stock dividends.
SIX MONTH PERIOD ENDED DECEMBER 31, YEAR ENDED JUNE 30, ------------------ ----------------------------------------------------- 1998 1997 1998 1997 1996 1995 1994 ------------------ ----------------------------------------------------- Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Including Interest on Deposits 1.45x 1.43x 1.43x 1.43x 1.48x 1.49x 1.56x Excluding Interest on Deposits 1.83x 1.78x 1.78x 1.81x 1.89x 1.79x 1.83x
For purposes of computing the consolidated ratios of earnings to combined fixed charges and preferred stock dividends, earnings consist of pretax income from continuing operations plus fixed charges and amortization of capitalized interest, less interest capitalized. Fixed charges consist of interest expensed and capitalized, amortization of debt issuance costs, and Oriental Financial Group's estimate of the interest component of rental expense. Ratios are presented both including and excluding interest on deposits. During the periods shown above Oriental Financial Group did not have preferred stock issued and outstanding. 6 8 RISK FACTORS You should carefully consider the following factors and other information in this prospectus, including the information incorporated by reference in this prospectus, before deciding to invest in the Series A Preferred Stock. DIVIDENDS WILL NOT BE PAID UNLESS DECLARED BY THE BOARD OF DIRECTORS Monthly dividends will only be paid if declared by Oriental Financial Group's board of directors. The board of directors is not obligated or required to declare monthly dividends. MISSED DIVIDENDS NEVER HAVE TO BE PAID If the board of directors does not declare a dividend for a particular month, those dividends never have to be paid. BANKING REGULATIONS MAY RESTRICT ORIENTAL FINANCIAL GROUP'S ABILITY TO PAY DIVIDENDS Oriental Financial Group may not be able to pay dividends in the future if it does not earn sufficient net income. Federal Reserve Board policy is that a bank holding company should pay dividends only out of its current net income. Oriental Financial Group had net income of $21.4 million for the year ended June 30, 1998 and of $12.4 million for the six-month period ended December 31, 1998. Banking regulations may also restrict the ability of Oriental Bank and Trust to make distributions to Oriental Financial Group. These distributions may be necessary for Oriental Financial Group to pay dividends on the Series A Preferred Stock. FLUCTUATIONS IN INTEREST RATES MAY HURT ORIENTAL FINANCIAL GROUP'S BUSINESS Interest rate fluctuations is the primary market risk affecting Oriental Financial Group. Changes in interest rates affect the following areas, among others, of Oriental Financial Group's business: - the number of mortgage loans originated; - the interest income earned on loans and securities; - the value of securities holdings; and - gain from sales of loans and securities. ORIENTAL FINANCIAL GROUP IS AT RISK BECAUSE ITS BUSINESS IS CONDUCTED IN PUERTO RICO Because all of Oriental Financial Group's business activities are conducted in Puerto Rico and a substantial portion of its credit exposure is in Puerto Rico, Oriental Financial Group is at risk from adverse economic, political or business developments and natural hazards that affect Puerto Rico. If Puerto Rico's economy experiences an overall decline as a result of these adverse developments or natural hazards, the rates of delinquencies, foreclosures, bankruptcies and losses on loan portfolios would probably increase substantially. This would cause Oriental Financial Group's profitability to decrease. 7 9 ORIENTAL FINANCIAL GROUP'S BUSINESS WOULD BE DISRUPTED IF ITS COMPUTER SYSTEMS CANNOT WORK PROPERLY WITH YEAR 2000 DATA Oriental Financial Group could experience a significant disruption to its business operations that could have an adverse effect on its profitability if its computer systems and the computer systems provided by third party vendors on which it relies are not able to properly use date calculations in the year 2000. Oriental Financial Group has taken steps that it believes are adequate to make sure this does not happen through a comprehensive year 2000 compliance program. However, Oriental Financial Group cannot assure you that these efforts will be completely successful. Problems suffered by providers of basic services, such as telephone, water, sewer and electricity could also have an adverse impact on Oriental Financial Group's daily operations. Oriental Financial Group is in the process of revising its existing business interruption contingency plans to address any disruptions of these basic services. FORWARD-LOOKING STATEMENTS This prospectus, including information incorporated in this prospectus by reference, contains certain "forward-looking statements" concerning Oriental Financial Group's operations, performance and financial condition, including its future economic performance, plans and objectives and the likelihood of success in developing and expanding its business. These statements are based upon a number of assumptions and estimates which are subject to significant uncertainties, many of which are beyond the control of Oriental Financial Group. The words "may," "would," "could," "will," "expect," "anticipate," "believe," "intend," "plan," "estimate" and similar expressions are meant to identify these forward-looking statements. Actual results may differ materially from those expressed or implied by these forward-looking statements. 8 10 USE OF PROCEEDS The net proceeds to Oriental Financial Group after deducting expenses from the sale of shares of Series A Preferred Stock are estimated at approximately $29,395,312. If the Underwriters' over-allotment option is exercised in full, the net proceeds are estimated at $33,753,562. Oriental Financial Group intends to use the net proceeds for general corporate purposes, which may include: - making capital contributions to its banking and non-banking subsidiaries; - increasing working capital; and - repurchasing common stock under a repurchase program. 9 11 CAPITALIZATION The following table shows the unaudited indebtedness and capitalization of Oriental Financial Group at December 31, 1998, on an actual basis and as adjusted to give effect to the issuance of the shares of Series A Preferred Stock offered by this prospectus. The table also assumes that the underwriters do not exercise their over-allotment option. In addition to the indebtedness reflected below, Oriental Financial Group had deposits of $618.6 million. This table should be read together with Oriental Financial Group's Consolidated Financial Statements and related notes incorporated by reference into this prospectus.
ACTUAL AS ADJUSTED ------------- ------------- (DOLLARS IN THOUSANDS) Borrowings Securities sold under agreements to repurchase................................. $ 534,290 $ 534,290 Advances and borrowings from The Federal Home Loan Bank of New York..................................................................... 60,100 60,100 Term notes and bonds payable................................................... 106,500 106,500 ------------- ------------- Total borrowings...................................................... $ 700,890 $ 700,890 ============= ============= Stockholders' Equity Preferred stock, $1.00 par value; 5,000,000 shares authorized; 1,225,000 shares of Series A Preferred Stock, as adjusted.................. $ 0 $ 1,225 Common stock, $1.00 par value; 40,000,000 shares authorized; 13,553,653 issued and outstanding at December 31, 1998..................... 13,554 13,554 Additional paid-in capital..................................................... 23,969 52,139 Legal surplus.................................................................. 6,468 6,468 Retained earnings.............................................................. 72,596 72,596 Treasury stock, at cost, 495,486 shares at December 31, 1998................... (11,890) (11,890) Accumulated other comprehensive income, net of taxes(1)........................ 6,075 6,075 ------------- ------------- Total stockholders' equity............................................ $ 110,772 $ 140,167 ============= =============
- ---------------------- (1.) Consists of unrealized gains on securities available for sale, net of deferred tax. 10 12 SELECTED FINANCIAL DATA The following table shows certain selected consolidated financial and operating data of Oriental Financial Group on a historical basis as of and for the six-month periods ended December 31, 1998 and 1997, and for each of the five fiscal years in the period ended June 30, 1998. This information should be read together with Oriental Financial Group's Consolidated Financial Statements and the related notes incorporated by reference in this prospectus. Financial information for the six-month periods ended December 31, 1998 and 1997, is derived from unaudited financial statements, which, in the opinion of management, include all adjustments necessary for a fair presentation of the results for those periods. These adjustments consist only of normal recurring accruals. Results for the six-month period ended December 31, 1998, are not necessarily indicative of results for the full year. In fiscal 1998 Oriental Financial Group earned $21.4 million or 20% over the $17.9 million earned in fiscal 1997, excluding a one-time Savings Association Insurance Fund assessment. The increase in net income was mainly due to increases in net interest income and non-interest income. Earnings per common share on a diluted basis were $1.56 in fiscal 1998 or 19% higher than the $1.31 in fiscal 1997, in each case as adjusted to reflect a four-for-three stock split effected on October 15, 1998 and a five-for-four stock split effected on October 15, 1997. Oriental Financial Group's profitability ratios for fiscal 1998 resulted in a return on average assets of 1.74%, compared to 1.84% in fiscal 1997, and a return on average stockholders' equity of 21.24%, compared to 21.17% in fiscal 1997. Net interest income for fiscal 1998 reached $43.4 million, 16% or $5.9 million higher than the $37.5 million earned in fiscal 1997. This improvement in net interest income reflects an increase of $6.3 million due to a higher volume of net interest-earning assets; partially offset by an unfavorable effect in interest rates of $376,000, as a result of a reduction of 39 basis points in the interest rate margin. In fiscal 1998 the interest rate spread was 3.57%, compared to 3.89% in fiscal 1997, and the net interest margin was 3.80%, compared to 4.19% in fiscal 1997. Non-interest income rose 30% to $22.6 million in fiscal 1998, from $17.4 million in fiscal 1997. Trust, money management and brokerage fees, the principal components of recurring non-interest income, totaled $8.4 million, which represents an increase of 24% from the $6.8 million earned in fiscal 1997. Noninterest income from recurring mortgage banking activities, excluding fees from its mortgage loan servicing portfolio, reached $4.5 million in fiscal 1998, an increase of 95% over the $2.3 million earned in fiscal 1997. This increase was the result of greater mortgage origination volume and favorable market conditions for the sale of such loans in the secondary market. The return on average assets ratio is computed by dividing net income by average assets for the period. The return on average equity ratio is computed by dividing net income by average stockholders' equity for the period. The efficiency ratio is computed by dividing recurring operating expenses by the sum of net interest income and recurring non-interest income. The expense ratio is computed by dividing net recurring operating expenses, which represents recurring non-interest expenses less recurring non-interest income, by total average interest-earning assets for the period. The average equity to average total assets ratio is computed by dividing average assets for the period by average stockholders' equity. The interest rate spread is the percentage difference or margin between the yield on interest-earning assets and the effective interest rate paid on interest-bearing liabilities. All ratios have been computed using month-end averages. All ratios, except for the interest rate spread, for the six-month periods ended December 31, 1998 and 1997, have been presented on an annualized basis. All per share information shown in the table has been adjusted to reflect a four-for-three stock split effected on October 15, 1998 and a five-for-four stock split effected on October 15, 1997. 11 13
SIX-MONTH PERIOD ENDED DECEMBER 31, FISCAL YEAR ENDED JUNE 30, ----------------------- ------------------------------------ 1998 1997 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING RESULTS AND DIVIDENDS PAID: Interest Income $ 54,873 $ 48,331 $ 101,580 $ 82,629 $ 70,447 Interest Expense 31,988 27,955 58,139 45,098 37,694 ---------- ---------- ---------- ---------- ---------- Net Interest Income 22,885 20,376 43,441 37,531 32,753 Provision for Loan Losses 9,750 5,000 9,545 4,900 4,600 Recurring Non-Interest Income 8,494 7,973 17,303 14,774 11,961 Non-recurring Non-Interest Income 8,517 3,945 5,342 2,578 2,801 Recurring Non-Interest Expenses 15,248 15,265 30,881 28,491 24,608 Non-recurring Non-Interest Expenses Expenses 337 51 400 1,830 0 Provision for Income Taxes 2,135 1,825 3,850 3,100 3,571 ---------- ---------- ---------- ---------- ---------- Net Income 12,426 10,153 21,410 16,562 14,736 SAIF Assessment, Net of Taxes 0 0 0 1,333 0 ---------- ---------- ---------- ---------- ---------- Net Income (Excluding SAIF Assessment) $ 12,426 $ 10,153 $ 21,410 $ 17,895 $ 14,736 ========== ========== ========== ========== ========== Cash Dividends Paid $ 3,026 $ 2,474 $ 5,442 $ 4,369 $ 3,184 PER SHARE DATA: Diluted (Excluding SAIF Assessment) $ 0.92 $ 0.74 $ 1.57 $ 1.31 $ 1.06 Diluted $ 0.92 $ 0.74 $ 1.57 $ 1.21 $ 1.06 Cash Dividends Paid $ 0.23 $ 0.19 $ 0.41 $ 0.33 $ 0.23 Book Value $ 8.17 $ 7. 62 $ 7.99 $ 6.72 $ 6.03 Market Price $ 31.31 $ 22.18 $ 27.66 $ 16.95 $ 9.50 Average Common Shares Outstanding 13,125 13,242 13,258 13,181 13,381 Average Potential Common Shares 397 451 440 496 532 ---------- ---------- ---------- ---------- ---------- TOTAL SHARES 13,522 13,693 13,698 13,677 13,913 ========== ========== ========== ========== ========== PERIOD END BALANCES: Bank Assets Owned $1,457,500 $1,202,600 $1,311,400 $1,068,600 $ 877,400 Trust Assets Managed 1,313,800 1,120,700 1,310,000 1,088,600 874,500 Broker-Dealer Customer Assets Gathered 813,300 560,600 741,400 524,900 293,100 ---------- ---------- ---------- ---------- ---------- Total Financial Assets 3,584,600 2,883,900 3,362,800 2,682,100 2,045,000 Loans Serviced for Third Parties 0 0 0 515,700 401,300 ---------- ---------- ---------- ---------- ---------- Total Financial Assets (Including Loans Serviced) $3,584,600 $2,883,900 $3,362,800 $3,197,800 $2,446,300 ========== ========== ========== ========== ========== Investment and Trading Securities $ 837,320 $ 585,619 $ 706,652 $ 468,594 $ 350,736 Loans and Loans Held-for-sale, Net 555,095 558,995 545,420 532,970 476,110 Interest-Earning Assets $1,392,415 $1,144,614 $1,252,072 $1,001,564 $ 826,846 ========== ========== ========== ========== ========== Deposits $ 618,622 $ 531,058 $ 571,431 $ 497,542 $ 382,557 Repurchase Agreements 534,290 330,708 416,171 247,915 242,335 Borrowings 166,600 218,978 189,388 204,816 145,466 ---------- ---------- ---------- ---------- ---------- Interest-Bearing Liabilities $1,319,512 $1,080,744 $1,176,990 $ 950,273 $ 770,358 ========== ========== ========== ========== ========== Stockholders' Equity $ 110,772 $ 101,292 $ 107,030 $ 89,394 $ 79,903 REGULATORY CAPITAL RATIOS: Leverage Capital 7.24% 7.97% 7.70% 8.17% 8.71% Total Risk-Based Capital 19.62% 19.45% 21.68% 18.66% 19.14% Tier 1 Risk-Based Capital 18.37% 18.20% 20.45% 17.53% 18.07% SELECTED FINANCIAL RATIOS: Return on Average Assets 1.79% 1.73% 1.74% 1.84% 1.82% Return on Average Equity 21.73% 21.09% 21.24% 21.17% 19.30% Efficiency Ratio 48.59% 52.35% 50.27% 52.76% 53.43% Expense Ratio 1.05% 1.22% 1.13% 1.34% 1.52% Average Equity to Average Total Assets 7.60% 8.42% 8.16% 8.69% 9.44% Interest Rate Spread 3.37% 3.58% 3.57% 3.89% 4.03% OTHER INFORMATION: Number of Banking Offices 19 17 17 16 16 FISCAL YEAR ENDED JUNE 30, -------------------------- 1995 1994 ---------- ---------- (DOLLARS INTHOUSANDS, EXCEPT PER SHARE DATA) OPERATING RESULTS AND DIVIDENDS PAID: Interest Income $ 58,143 $ 46,475 Interest Expense 30,423 22,843 ---------- ---------- Net Interest Income 27,720 23,632 Provision for Loan Losses 2,550 2,000 Recurring Non-Interest Income 9,157 8,363 Non-recurring Non-Interest Income 2,275 1,609 Recurring Non-Interest Expenses 21,590 18,752 Non-recurring Non-Interest Expenses Expenses 0 0 Provision for Income Taxes 2,905 3,025 ---------- ---------- Net Income 12,107 9,827 SAIF Assessment, Net of Taxes 0 0 ---------- ---------- Net Income (Excluding SAIF Assessment) $ 12,107 $ 9,827 ========== ========== Cash Dividends Paid $ 1,709 $ 730 PER SHARE DATA: Diluted (Excluding SAIF Assessment) $ 0.89 $ 0.91 Diluted $ 0.89 $ 0.91 Cash Dividends Paid $ 0.13 $ 0.08 Book Value $ 5.23 $ 4.60 Market Price $ 7.61 $ 5 .48 Average Common Shares Outstanding 12,743 10,035 Average Potential Common Shares 870 820 ---------- ---------- TOTAL SHARES 13,613 10,855 ========== ========== PERIOD END BALANCES: Bank Assets Owned $ 744,400 $ 655,000 Trust Assets Managed 699,000 545,400 Broker-Dealer Customer Assets Gathered 195,400 153,200 ---------- ---------- Total Financial Assets 1,638,800 1,353,600 Loans Serviced for Third Parties 272,900 153,700 ---------- ---------- Total Financial Assets (Including Loans Serviced) $1,911,700 $1,507,300 ========== ========== Investment and Trading Securities $ 290,106 $ 279,303 Loans and Loans Held-for-sale, Net 409,391 339,216 Interest-Earning Assets $ 699,497 $ 618,519 ========== ========== Deposits $ 313,542 $ 249,192 Repurchase Agreements 195,337 -- Borrowings 137,472 327,870 ---------- ---------- Interest-Bearing Liabilities $ 646,351 $ 577,062 ========== ========== Stockholders' Equity $ 69,705 $ 55,684 REGULATORY CAPITAL RATIOS: Leverage Capital 8.89% 8.49% Total Risk-Based Capital 17.73% 19.92% Tier 1 Risk-Based Capital 17.00% 18.90% SELECTED FINANCIAL RATIOS: Return on Average Assets 1.77% 1.68% Return on Average Equity 19.05% 26.52% Efficiency Ratio 59.65% 61.04% Expense Ratio 1.61% 1.80% Average Equity to Average Total Assets 9.31% 6.33% Interest Rate Spread 4.04% 4.15% OTHER INFORMATION: Number of Banking Offices 15 14
12 14 SUMMARY OF CERTAIN TERMS OF THE SERIES A PREFERRED STOCK The following summary contains a description of the material terms of the Series A Preferred Stock. The summary is subject to and qualified in its entirety by reference to Oriental Financial Group's certificate of incorporation, as amended, and to the certificate of designation creating the Series A Preferred Stock (the "Certificate of Designation"), copies of which are incorporated by reference as exhibits to the registration statement of which this prospectus is a part. DIVIDENDS If declared at the option of Oriental Financial Group's board of directors, holders of record of the Series A Preferred Stock will be entitled to receive cash dividends in the amount of $ per share each year, which is equivalent to % of the liquidation preference of $25 per share. Oriental Financial Group is not required to declare or pay dividends on the Series A Preferred Stock, even if it has funds available for the payment of such dividends. Dividends may only be paid out of funds that are legally available for this purpose. Dividends on the Series A Preferred Stock will accrue from their date of original issuance and will be payable on the last day of each month in United States dollars beginning on , 1999. Payment of dividends will be made to the holders of record of the Series A Preferred Stock as they appear on the books of Oriental Financial Group on the fifteenth day of the month in which the dividends are payable. In the case of the dividend payable on , 1999, this dividend will cover the period from the date of issuance of the Series A Preferred Stock to , 1999. If any date on which dividends are payable is not a Business Day, then payment of the dividend will be made on the next Business Day without any interest or other payment in respect of the delay. If December 31 of any year is not a Business Day, then the dividend payable on such date will be made on the immediately preceding Business Day. A "Business Day" is a day other than a Saturday or Sunday or a general banking holiday in San Juan, Puerto Rico, or New York, New York. Dividends on the Series A Preferred Stock will be noncumulative. If the board of directors does not declare a dividend for any monthly dividend period on the Series A Preferred Stock, then the holders of Series A Preferred Stock will not have a right to receive a dividend for that monthly dividend period, whether or not dividends on the Series A Preferred Stock are declared for any future monthly dividend period. Dividends for any monthly dividend period will be paid in equal installments in the amount of $ per share. The amount of dividends payable for any period shorter than a full monthly dividend period will be computed on the basis of the actual number of days elapsed in that period. Dividend payments will be mailed to the record holders of the Series A Preferred Stock at their addresses appearing on the register for the Series A Preferred Stock. The terms of the Series A Preferred Stock do not permit Oriental Financial Group to declare, set apart or pay any dividend or make any other distribution of assets on, or redeem, purchase, set apart or otherwise acquire shares of common stock or of any other class of stock of Oriental Financial Group ranking junior to he Series A Preferred Stock as to the payment of dividends or as to the distribution of assets upon liquidation, dissolution or winding up of Oriental Financial Group, unless certain conditions are met. Those conditions are (1) all accrued and unpaid dividends on the Series A Preferred Stock for the twelve monthly dividend periods ending on the immediately preceding dividend payment date shall have been paid or are paid contemporaneously, (2) the full monthly dividend on the Series A Preferred Stock for the then current month 13 15 has been or is contemporaneously declared and paid or declared and set apart for payment, and (3) Oriental Financial Group has not defaulted in the payment of the redemption price of any shares of Series A Preferred Stock called for redemption. See "Redemption at the Option of Oriental Financial Group." The above limitations do not apply to stock dividends or other distributions made in stock of Oriental Financial Group ranking junior to the Series A Preferred Stock as to the payment of dividends and as to the distribution of assets. The above limitations also do not apply to conversions or exchanges for stock of Oriental Financial Group ranking junior to the Series A Preferred Stock as to the payment of dividends and as to the distribution of assets. If Oriental Financial Group is unable to pay in full the dividends on the Series A Preferred Stock and on any other shares of stock of equal rank as to the payment of dividends with the Series A Preferred Stock, all dividends declared upon the Series A Preferred Stock and any such other shares of stock will be declared pro rata. In this event, each share of Series A Preferred Stock and of the other classes of stock of equal rank will receive dividends in the same proportion as the full dividends on the Series A Preferred Stock, for the then-current dividend period (which shall not include any accumulation in respect of unpaid dividends for prior dividend periods) and full dividends, including required or permitted accumulations, if any, on such other classes of equally ranked stock, bear to each other. For a discussion of the tax treatment of distributions to stockholders see "Taxation," "Puerto Rico Taxation," and "United States Taxation," and for a discussion on certain potential regulatory limitations on Oriental Financial Group's ability to pay dividends, see "Risk Factors -- Banking Regulations May Restrict Oriental Financial Group's Ability to Pay Dividends." NO CONVERSION OR EXCHANGE RIGHTS The Series A Preferred Stock will not be convertible into or exchangeable for any other securities of Oriental Financial Group. REDEMPTION AT THE OPTION OF ORIENTAL FINANCIAL GROUP Oriental Financial Group may not redeem the shares of the Series A Preferred Stock prior to , 2004. On and after that date, Oriental Financial Group may redeem the Series A Preferred Stock for cash, at its option, in whole or in part, at the redemption prices shown below plus accrued and unpaid dividends for the then current monthly dividend period to the redemption date. The redemption prices for the twelve month periods beginning on , 2004 are shown below.
YEAR REDEMPTION PRICE - ---- ---------------- 2004 .......................................................................................... $25.50 2005 .......................................................................................... $25.25 2006 and thereafter............................................................................ $25.00
14 16 In the event that Oriental Financial Group elects to redeem less than all of the outstanding shares of the Series A Preferred Stock, the shares to be redeemed will be allocated pro rata or by lot as may be determined by the board of directors, or by any other method as the board of directors may consider fair. Any method chosen by Oriental Financial Group will conform to any rule or regulation of any national or regional stock exchange or automated quotation system on which the shares of the Series A Preferred Stock may at the time be listed or eligible for quotation. Oriental Financial Group will mail a notice of any proposed redemption to the holders of record of the shares of Series A Preferred Stock to be redeemed, at their address of record, not less than 30 nor more than 60 days prior to the redemption date. The notice of redemption to each holder of shares of Series A Preferred Stock will specify the number of shares of Series A Preferred Stock to be redeemed, the redemption date and the redemption price payable to the holder upon redemption, and shall state that from and after the redemption date dividends will cease to accrue. If Oriental Financial Group redeems less than all the shares owned by a holder, the notice will also specify the number of shares of Series A Preferred Stock of the holder which are to be redeemed and the numbers of the certificates representing such shares. Any notice mailed in accordance with these procedures will be conclusively presumed to have been properly given, whether or not the stockholder receives this notice. The failure by Oriental Financial Group to give this notice by mail, or any defect in the notice, to the holders of any shares designated for redemption will not affect the validity of the proceedings for the redemption of any other shares of Series A Preferred Stock. If the redemption notice is properly mailed and Oriental Financial Group pays the redemption price, from and after the redemption date, all dividends on the shares of Series A Preferred Stock called for redemption will cease to accrue and all rights of the holders of the shares being redeemed as stockholders of Oriental Financial Group shall cease on the redemption date. Holders will retain the right to receive the redemption price upon presentation of their stock certificates. If Oriental Financial Group redeems less than all the shares represented by any certificate, a new certificate representing the unredeemed shares shall be issued without cost to the holder. At its option, Oriental Financial Group may, on or prior to the redemption date, irrevocably deposit the entire amount payable upon redemption of the shares of the Series A Preferred Stock to be redeemed with a bank or trust company designated by Oriental Financial Group having its principal office in New York, New York, San Juan, Puerto Rico, or any other city in which Oriental Financial Group shall at that time maintain a transfer agent with respect to its capital stock, and having a combined capital and surplus of at least $50,000,000 (hereinafter referred to as the "Depositary"). The Depositary will hold this amount in trust for payment to the holders of the shares of the Series A Preferred Stock to be redeemed. If the deposit is made and the funds deposited are immediately available to the holders of the shares of the Series A Preferred Stock to be redeemed, Oriental Financial Group will no longer have any obligation to make payment of the amount payable upon redemption of the shares of the Series A Preferred Stock to be redeemed. Following the deposit, except as discussed in the next paragraph, holders of these shares shall look only to the Depositary for payment. Any funds remaining unclaimed at the end of two years after the redemption date for which these funds were deposited shall be returned to Oriental Financial Group. After the funds are returned to Oriental Financial Group, the holders of shares called for redemption shall look only to Oriental Financial Group for the payment of the redemption price. Any interest accrued on any funds deposited with the Depositary will belong to Oriental Financial Group and shall be paid to Oriental Financial Group on demand. 15 17 After the redemption of any shares of the Series A Preferred Stock, the redeemed shares will have the status of authorized but unissued shares of serial preferred stock, without designation as to series, until these shares are once more designated as part of a particular series by the board of directors of Oriental Financial Group. Certain Regulatory Considerations Affecting Redemptions Under regulations adopted by the Federal Reserve Board, Oriental Financial Group may not redeem the Series A Preferred Stock, without the prior approval of the Federal Reserve Board. Ordinarily, the Federal Reserve Board will not permit a redemption unless (1) the shares are redeemed with the proceeds of a sale of common stock or perpetual preferred stock, or (2) the Federal Reserve Board determines that Oriental Financial Group's condition and circumstances warrant the reduction of a source of permanent capital. Also, under Section 8.04 of the Puerto Rico General Corporation Law, Oriental Financial Group may not redeem any shares of its capital stock unless the assets remaining after the redemption are sufficient to pay any debts for which payment has not otherwise been provided. LIQUIDATION PREFERENCE Upon any liquidation, dissolution, or winding up of Oriental Financial Group, the record holders of shares of Series A Preferred Stock will be entitled to receive out of the assets of Oriental Financial Group available for distribution to shareholders, before any distribution is made to holders of common stock or any other equity securities of Oriental Financial Group ranking junior upon liquidation to the Series A Preferred Stock, the amount of $25 per share plus an amount equal to any accrued and unpaid dividends for the current monthly dividend period to the date of payment. If Oriental Financial Group is liquidated or dissolved and the amounts payable with respect to the Series A Preferred Stock and any other shares of stock of equal rank upon liquidation are not paid in full, the holders of the Series A Preferred Stock and of the other shares will share ratably in any such distribution of assets in proportion to the full liquidation preferences to which each would otherwise be entitled. After payment of the full amount of the liquidation preference to which they are entitled, the holders of shares of Series A Preferred Stock will not be entitled to any further participation in any distribution of assets of Oriental Financial Group. A consolidation or merger of Oriental Financial Group with any other corporation, or any sale, lease or conveyance of all or any part of the property or business of Oriental Financial Group, shall not be deemed to be a liquidation, dissolution, or winding up of Oriental Financial Group. VOTING RIGHTS Holders of the Series A Preferred Stock will not be entitled to receive notice of or attend or vote at any meeting of stockholders of Oriental Financial Group, except as described below. If Oriental Financial Group does not pay dividends in full on the Series A Preferred Stock for eighteen monthly dividend periods, whether consecutive or not, the holders of outstanding shares of the Series A Preferred Stock, together with the holders of any other shares of stock having the right to vote for 16 18 the election of directors solely in the event of any failure to pay dividends, acting as a single class, will be entitled to appoint two additional members to the board of directors of Oriental Financial Group. They will also have the right to remove any member so appointed from office and appoint another person in place of such member. To make this appointment, the holders of a majority in liquidation preference of these shares must send written notice of the appointment to Oriental Financial Group or pass a resolution adopted by a majority of holders at a separate general meeting of those holders called for this purpose. Not later than 30 days after the right of holders of Series A Preferred Stock to elect directors arises, if written notice by a majority of the holders has not been given as provided for in the preceding sentence, the board of directors of Oriental Financial Group or an authorized board committee is required to call a separate general meeting for this purpose. If the board of directors fails to convene this meeting within the 30-day period, the holders of 10% of the outstanding shares of the Series A Preferred Stock and any such other stock will be entitled to convene the meeting. The provisions of the certificate of incorporation, as amended, and by-laws of Oriental Financial Group relating to the convening and conduct of general meetings of stockholders will apply to any separate general meeting of this type. Any member of the board of directors appointed as described above shall vacate office if Oriental Financial Group resumes the payment of dividends in full on the Series A Preferred Stock and each other series of stock having similar voting rights for twelve consecutive monthly dividend periods. The by-laws of Oriental Financial Group provide that the board of directors shall consist of such number of directors as established from time to time by a vote of a majority of the board of directors, provided that no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. As of the date of this prospectus, Oriental Financial Group's board of directors consisted of nine members. Any change or cancellation of the rights and preferences of the Series A Preferred Stock will require the approval of holders of at least two thirds of the outstanding aggregate liquidation preference of the Series A Preferred Stock. This approval can by evidenced either by a consent in writing or by a resolution passed at a meeting of the holders of the Series A Preferred Stock. The authorization or issuance of any shares of Oriental Financial Group ranking senior to the Series A Preferred Stock as to dividend rights or rights on liquidation or similar events, will be considered a change requiring the consent of the Series A Preferred Stock. Conversely, the authorization or issuance of shares ranking, as to dividend rights or rights on liquidation or similar events, on a parity or junior to the Series A Preferred Stock, will not be considered a change or abrogation of the rights of the Series A Preferred Stock and the consent of the holders of the Series A Preferred Stock will not be required in connection with this action. No vote of the holders of the Series A Preferred Stock will be required for Oriental Financial Group to redeem or purchase and cancel the Series A Preferred Stock in accordance with the certificate of incorporation, as amended, or the Certificate of Designation for the Series A Preferred Stock. Oriental Financial Group will cause a notice of any meeting at which holders of the Series A Preferred Stock are entitled to vote to be mailed to each record holder of the Series A Preferred Stock. Each notice will contain (1) the date of the meeting, (2) a description of any resolution to be proposed for adoption at the meeting, and (3) instructions for deliveries of proxies. 17 19 Certain Regulatory Issues Related to Voting Rights Under regulations adopted by the Federal Reserve Board, if the holders of shares of Series A Preferred Stock become entitled to vote for the election of directors as described above, the Series A Preferred Stock could be deemed a "class of voting securities." In this instance, a holder of 25% or more of the Series A Preferred Stock could then be subject to regulation as a bank holding company in accordance with the Bank Holding Company Act. A holder of 5% that otherwise exercises a "controlling influence" over Oriental Financial Group could also be subject to regulation under the Bank Holding Company Act. In addition, at any time the Series A Preferred Stock is deemed a class of voting securities, (1) any other bank holding company may be required to obtain the approval of the Federal Reserve Board to acquire or retain 5% or more of the outstanding shares of Series A Preferred Stock, and (2) any person other than a bank holding company may be required to file with the Federal Reserve Board under the Change in Bank Control Act to acquire or retain 10% or more of such series. Section 12 of the Puerto Rico Banking Law requires that the Office of the Commissioner of Financial Institutions of Puerto Rico approve any change of control involving a bank organized under the Banking Law. The Banking Law requires that the Office of the Commissioner be informed not less than 60 days prior to any transfer of voting stock of a Puerto Rico bank that results in any person owning, directly or indirectly, more than 5% of the outstanding voting stock of the bank. For the purposes of Section 12 of the Banking Law, the term "control" means the power to, directly or indirectly, direct or influence decisively the administration or the norms of the bank. The Office of the Commissioner has made an administrative determination that these provisions of the Banking Law are applicable to a change in control of Oriental Financial Group. Pursuant to the Banking Law, if the Office of the Commissioner receives notice of a proposed transaction that may result in a change of control of Oriental Financial Group, the Office of the Commissioner is required to investigate and determine whether a change of control has occurred. The Office of the Commissioner will issue an authorization for the transfer of control of Oriental Financial Group if the results of its investigations are in its judgment satisfactory. The decision of the Office of the Commissioner is final and unreviewable. Rank The Series A Preferred Stock will, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank: - senior to all classes of common stock of Oriental Financial Group, and to all other equity securities issued by Oriental Financial Group the terms of which specifically provide that those equity securities will rank junior to the Series A Preferred Stock; - on a parity with all other equity securities issued by Oriental Financial Group the terms of which specifically provide that those equity securities will have equal rank as the Series A Preferred Stock; and - junior to all equity securities issued by Oriental Financial Group the terms of which specifically provide that those equity securities will rank senior to the Series A Preferred Stock. 18 20 For this purpose, the term "equity securities" does not include debt securities convertible into or exchangeable for equity securities. Oriental Financial Group may not issue shares ranking, as to dividend rights or rights on liquidation, winding up and dissolution, senior to the Series A Preferred Stock, except with the consent of the holders of at least two-thirds of the outstanding aggregate liquidation preference of the Series A Preferred Stock. See "Voting Rights" above. TRANSFER AGENT; DIVIDEND DISBURSING AGENT; REGISTRAR American Stock Transfer and Trust Company will initially act as the transfer agent, dividend disbursing agent and registrar for the Series A Preferred Stock. Holders of the Series A Preferred Stock may contact American Stock Transfer and Trust Company, at the following address: 40 Wall Street, 46th Floor, New York, New York 10005, toll-free telephone number 1-800-937-5449, fax number 718-236-4588. The transfer of a share of Series A Preferred Stock may be registered upon the surrender of the certificate evidencing the share of Series A Preferred Stock to be transferred, together with the form of transfer endorsed on it duly completed and executed, at the office of the transfer agent and registrar. Registration of transfers of shares of Series A Preferred Stock will be effected without charge by or on behalf of Oriental Financial Group, but upon payment of any tax or other governmental charges which may be imposed in relation to it or the giving of an indemnity as the transfer agent and registrar may require. Oriental Financial Group will not be required to register the transfer of a share of Series A Preferred Stock after the share has been called for redemption. REPLACEMENT OF LOST CERTIFICATES If any certificate for a share of Series A Preferred Stock is mutilated or alleged to have been lost, stolen or destroyed, the holder may request a new certificate representing the same share. Oriental Financial Group will issue a new certificate subject to delivery of the old certificate or, if alleged to have been lost, stolen or destroyed, compliance with the conditions as to evidence of ownership and indemnity. In all cases, the holder shall pay the out-of-pocket expenses of Oriental Financial Group as Oriental Financial Group may determine. NO PREFERENTIAL RIGHTS TO PURCHASE ADDITIONAL SECURITIES Holders of the Series A Preferred Stock will have no preemptive or preferential rights to purchase or subscribe for any securities of Oriental Financial Group. NO REPURCHASE AT THE OPTION OF THE HOLDERS Holders of the Series A Preferred Stock will have no right to require Oriental Financial Group to redeem or repurchase any shares of Series A Preferred Stock. 19 21 NO MANDATORY REDEMPTION OR SINKING FUNDING OBLIGATION The shares of Series A Preferred Stock are not subject to any mandatory redemption, sinking fund or similar obligation. PURCHASE OF SHARES BY ORIENTAL FINANCIAL GROUP Oriental Financial Group may, at its option, purchase shares of the Series A Preferred Stock from holders thereof from time to time, by tender, in privately negotiated transactions or otherwise. DESCRIPTION OF CAPITAL STOCK AUTHORIZED CAPITAL Oriental Financial Group is authorized to issue 40,000,000 shares of common stock, $1.00 par value per share, and 5,000,000 shares of preferred stock, $1.00 par value per share. The following is a summary of certain rights and privileges of the common stock and serial preferred stock. Statements in this summary are qualified in their entirety by reference to Oriental Financial Group's certificate of incorporation, as amended, and to the General Corporation Law of Puerto Rico. COMMON STOCK As of February 28, 1999, there were 13,560,474 shares of common stock issued, of which 13,014,988 were outstanding and 545,486 were held by Oriental Financial Group as treasury shares. As of that date, a total of 750,000 shares were reserved for issuance in connection with Oriental Financial Group's 1998 Incentive Stock Option Plan. Under the 1996 Incentive Stock Option Plan, 1,025,590 shares were issued and are outstanding and 24,147 shares were reserved for issuance. All stock options issued under the 1996 Incentive Stock Option Plan are contingent upon Oriental Financial Group meeting or exceeding certain financial goals. Under the 1988 Stock Option Plan, 402,100 shares were issued and are outstanding. The common stock is traded in the New York Stock Exchange under the symbol "OFG." The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Each share of common stock has the same relative rights as, and is identical in all respects with, each other share of common stock. At each annual meeting of stockholders in which more than one director is being elected, every stockholder entitled to vote at such election has the right to vote, in person or by proxy, the number of shares owned by the stockholder for as many persons as there are directors to be elected and for whose election the stockholder has a right to vote, or to accumulate the votes by giving one candidate as many votes as the number of such directors to be elected multiplied by the number of his shares equals, or by distributing such votes on the same principle among any number of candidates. Subject to the rights of holders of the Series A Preferred Stock and any other outstanding shares of preferred stock, in the event of the liquidation, dissolution or distribution of assets of Oriental Financial Group, the holders of common stock are entitled to share ratably in the assets legally available for distribution to stockholders. The common stock has no redemption, conversion or sinking fund privileges. Subject to any dividend preferences which may be established with respect to any series of serial preferred stock, the holders of common stock are entitled to receive, pro rata, dividends when and as declared by the board of directors out of funds legally available for the payment of dividends. 20 22 Holders of common stock do not have preemptive rights to subscribe for or purchase additional securities of Oriental Financial Group. American Stock Transfer and Trust Company is the transfer agent and registrar for the common stock. PREFERRED STOCK The certificate of incorporation, as amended, authorizes the board of directors to fix the designation, voting powers, preferences, limitations and relative rights of any series of Oriental Financial Group's serial preferred stock at the time of issuance. As of the date of this prospectus, there are no series of preferred stock designated by Oriental Financial Group, other than the Series A Preferred Stock. TAXATION GENERAL In the opinion of McConnell Valdes, San Juan, Puerto Rico, counsel to Oriental Financial Group, the following discussion summarizes the material Puerto Rico and United States tax considerations relating to the purchase, ownership and disposition of Series A Preferred Stock. This discussion does not intend to describe all of the tax considerations that may be relevant to a particular investor in light of that person's particular circumstances and does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than Puerto Rico and the United States. This discussion is based on the tax laws of Puerto Rico and the United States as in effect on the date of this prospectus, as well as regulations, administrative pronouncements and judicial decisions available on or before such date and now in effect. All of the foregoing are subject to change, which change could apply retroactively and could affect the continued validity of this summary. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE APPLICATION TO YOUR PARTICULAR SITUATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW, AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX. PUERTO RICO TAXATION The following discussion does not intend to cover all aspects of Puerto Rico taxation that may be relevant to a purchaser of Series A Preferred Stock in light of the purchaser's particular circumstances, or to purchasers subject to special rules of taxation, such as life insurance companies, "Special Partnerships," "Subchapter N Corporations," registered investment companies, and certain pension trusts. For purposes of the discussion below, a "Puerto Rico corporation" is a corporation organized under the laws of Puerto Rico and a "foreign corporation" is a corporation organized under the laws of a jurisdiction other than Puerto Rico. 21 23 OWNERSHIP AND DISPOSITION OF SERIES A PREFERRED STOCK Taxation of Dividends. General. Distributions of cash or other property made by Oriental Financial Group on the Series A Preferred Stock will be treated as dividends to the extent that Oriental Financial Group has current or accumulated earnings and profits. To the extent that a distribution exceeds Oriental Financial Group's current and accumulated earnings and profits, the distribution will be applied against and reduce the adjusted tax basis of the Series A Preferred Stock in the hands of the holder. The excess of any distribution of this type over the adjusted tax basis will be treated as gain on the sale or exchange of the Series A Preferred Stock and will be subject to income tax as described below. The following discussion regarding the income taxation of dividends on Series A Preferred Stock received by individuals not residents of Puerto Rico and foreign corporations not engaged in a trade or business in Puerto Rico assumes that dividends will constitute income from sources within Puerto Rico. Generally, a dividend declared by a Puerto Rico corporation will constitute income from sources within Puerto Rico unless the corporation derived less than 20% of its gross income from sources within Puerto Rico for the three taxable years preceding the year of the declaration. Oriental Financial Group has represented that it has derived more than 20% of its gross income from Puerto Rico sources on an annual basis since its incorporation in 1972. Individual Residents of Puerto Rico and Puerto Rico Corporations. In general, individuals who are residents of Puerto Rico will be subject to a special 10% income tax (the "10% Special Tax") on dividends paid on the Series A Preferred Stock. This tax is generally required to be withheld by Oriental Financial Group or dividends paid on the Series A Preferred Stock. An individual may elect for this withholding not to apply, and in that case he or she will be required to include the amount of the dividend as ordinary income and will be subject to income tax thereon at the normal income tax rates, which may be up to 33%. Puerto Rico corporations will be subject to income tax on dividends paid on the Series A Preferred Stock at the normal corporate income tax rates, subject to the dividend received deduction discussed below. In the case of a Puerto Rico corporation, no withholding will be imposed on dividends paid on the Series A Preferred Stock. The dividend received deduction will be equal to 85% of the dividend received, but the deduction may not exceed 85% of the corporation's net taxable income. Based on the applicable maximum Puerto Rico normal corporate income tax rate of 39%, the maximum effective income tax rate on these dividends will be 5.85% after accounting for the dividend received deduction. As a practical matter, dividends on the Series A Preferred Stock held in "street name" through foreign financial institutions or other securities intermediaries not engaged in trade or business in Puerto Rico will generally be subject to a separate 10% withholding tax imposed on foreign corporations. See "Foreign Corporations." Accordingly, individuals resident of Puerto Rico who desire to file an election out of the applicable 10% Special Tax and applicable withholding tax should have their shares of Series A Preferred Stock issued and registered in their own name. Similarly, Puerto Rico corporations that own any shares of Series A Preferred Stock and wish to avoid the withholding imposed on foreign corporations should have their shares issued and registered in their own name in order to ensure that no withholding is made on dividends. 22 24 United States Citizens Not Residents of Puerto Rico. Dividends paid on the Series A Preferred Stock to a United States citizen who is not a resident of Puerto Rico will be subject to the 10% Special Tax which will be withheld by Oriental Financial Group. These individuals may elect for the 10% Special Tax and withholding not to apply, and in that case he or she will be required to include the amount of the dividend as ordinary income and will be subject to income tax thereon at the normal income tax rates, which may be up to 33%. Notwithstanding the making of this election, a separate 10% withholding tax will be required on the amount of the dividend unless the individual timely files with Oriental Financial Group or its agent a withholding exemption certificate to the effect that the individual's gross income from sources within Puerto Rico during the taxable year does not exceed $1,300 if single or $3,000 if married. Withholding exemption certificates will only be accepted by Oriental Financial Group or its agent from individuals who have the shares of Series A Preferred Stock registered in their names. Individuals who hold shares of Series A Preferred Stock in "street name" will not be eligible to file with Oriental Financial Group or its agent withholding exemption certificates. Individuals Not Citizens of the United States and Not Residents of Puerto Rico. Dividends paid on the Series A Preferred Stock to any individual who is not a citizen of the United States and who is not a resident of Puerto Rico will generally be subject to a 10% tax which will be withheld at source by Oriental Financial Group. Foreign Corporations. The income taxation of dividends paid on the Series A Preferred Stock to a foreign corporation will depend on whether or not the corporation is engaged in a trade or business in Puerto Rico in the taxable year of the dividend. A foreign corporation that is engaged in a trade or business in Puerto Rico will be subject to the normal corporate income tax rates applicable to Puerto Rico corporations on their net income that is effectively connected with the trade or business in Puerto Rico. This income will include all net income from sources within Puerto Rico and certain items of net income from sources outside Puerto Rico that are effectively connected with the trade or business in Puerto Rico. Net income from sources within Puerto Rico will include dividends on the Series A Preferred Stock. A foreign corporation that is engaged in a trade or business in Puerto Rico will be entitled to claim the 85% dividend received deduction discussed above in connection with Puerto Rico corporations. In general, foreign corporations that are engaged in a trade or business in Puerto Rico are also subject to a 10% branch profits tax. However, dividends on the Series A Preferred Stock received by these corporations will be excluded from the computation of the branch profits tax liability of these corporations. A foreign corporation that is not engaged in a trade or business in Puerto Rico will be subject to a 10% withholding tax on dividends received on the Series A Preferred Stock. Partnerships. Partnerships are generally taxed in the same manner as corporations. Accordingly, the preceding discussion with respect to Puerto Rico and foreign corporations is equally applicable in the case of most Puerto Rico and foreign partnerships, respectively. Taxation of Gains Upon Sales or Exchanges other than Redemptions. General. The sale or exchange of Series A Preferred Stock will give rise to gain or loss equal to the difference between the amount realized on the sale or exchange and the tax basis of the Series A Preferred 23 25 Stock in the hands of the holder. Any gain or loss that is required to be recognized will be a capital gain or loss if the Series A Preferred Stock is held as a capital asset by the holder and will be a long-term capital gain or loss if the stockholders' holding period of the Series A Preferred Stock exceeds six months. Individual Residents of Puerto Rico and Puerto Rico Corporations. Gain on the sale or exchange of Series A Preferred Stock by an individual resident of Puerto Rico or a Puerto Rico corporation will generally be required to be recognized as gross income and will be subject to income tax. If the stockholder is an individual and the gain is a long-term capital gain, the gain will be taxable at a maximum rate of 20%. If the stockholder is a Puerto Rico corporation and the gain is a long-term capital gain, the gain will qualify for an alternative tax rate of 25%. United States Citizens Not Residents of Puerto Rico. A United States citizen who is not a resident of Puerto Rico will not be subject to Puerto Rico income tax on the sale or exchange of Series A Preferred Stock if the gain resulting therefrom constitutes income from sources outside Puerto Rico. Generally, gain on the sale or exchange of Series A Preferred Stock will be considered to be income from sources outside Puerto Rico if all rights, title and interest in or to the Series A Preferred Stock are transferred outside Puerto Rico, and if the delivery or surrender of the instruments that evidence the Series A Preferred Stock is made to an office of a paying or exchange agent located outside Puerto Rico. If the gain resulting from the sale or exchange constitutes income from sources within Puerto Rico, an amount equal to 20% of the payments received will be withheld at the source; and if the gain constitutes a long-term capital gain, it will be subject to a tax at a maximum rate of 20%. The amount of tax withheld at source will be creditable against the shareholder's Puerto Rico income tax liability. Individuals Not Citizens of the United States and Not Residents of Puerto Rico. An individual who is not a citizen of the United States and who is not a resident of Puerto Rico will be subject to the rules described above under "United States Citizens Not Residents of Puerto Rico." However, if the gain resulting from the sale or exchange of Series A Preferred Stock constitutes income from sources within Puerto Rico, an amount equal to 25% of the gain will be withheld at the source; provided, that if the gain resulting from the sale or exchange represents a net capital gain, the individual will generally be subject to tax on this gain at a fixed rate of 29%. The amount of tax withheld at source will be creditable against the shareholder's Puerto Rico income tax liability. Foreign Corporations. A foreign corporation that is engaged in a trade or business in Puerto Rico will generally be subject to Puerto Rico corporate income tax on any gain realized on the sale or exchange of Series A Preferred Stock if the gain is (1) from sources within Puerto Rico or (2) from sources outside Puerto Rico and effectively connected with a trade or business in Puerto Rico. Any such gain will qualify for an alternative tax of 25% if it qualifies as a long-term capital gain. In general, foreign corporations that are engaged in a trade or business in Puerto Rico will also be subject to a 10% branch profits tax. In the computation of this tax, any gain realized by these corporations on the sale or exchange of Series A Preferred Stock and that is subject to Puerto Rico income tax will be taken into account. However, a deduction will be allowed in the computation for any income tax paid on the gain realized on the sale or exchange. A foreign corporation that is not engaged in a trade or business in Puerto Rico will generally be subject to a corporate income tax rate of 29% on any capital gain realized on the sale or exchange of Series A 24 26 Preferred Stock if the gain is from sources within Puerto Rico. Gain on the sale or exchange of Series A Preferred Stock will generally not be considered to be from sources within Puerto Rico if all rights, title and interest in or to the Series A Preferred Stock are transferred outside Puerto Rico, and if the delivery or surrender of the instruments that evidence the Series A Preferred Stock is made to an office of a paying or exchange agent located outside Puerto Rico. If the gain resulting from the sale or exchange constitutes income from sources within Puerto Rico, an amount equal to 25% of the gain will be withheld at the source and be creditable against the shareholder's Puerto Rico income tax liability. In the case of such foreign corporation, no income tax will be imposed if the gain constitutes income from sources outside Puerto Rico. Partnerships. Partnerships are generally taxed as corporations. Accordingly, the discussion with respect to Puerto Rico and foreign corporations is equally applicable to most Puerto Rico and foreign partnerships, respectively. Taxation of Redemptions. A redemption of shares of the Series A Preferred Stock for cash will be treated as a distribution taxable as a dividend to the extent of Oriental Financial Group's current or accumulated earnings and profits if it is "essentially equivalent to a dividend." Under regulations issued by the Department of the Treasury of Puerto Rico (1) a redemption of stock that completely terminates a shareholder's interest in a corporation does not constitute a dividend, and (2) certain pro rata redemptions among all the shareholders will be treated as a dividend. In situations not described by these regulations, the Department of the Treasury of Puerto Rico will generally follow principles applied by the United States Internal Revenue Service under the United States Internal Revenue Code of 1986, in determining whether a distribution is essentially equivalent to a dividend. The Department of the Treasury of Puerto Rico, however, is not bound by IRS determinations on this issue and is free to adopt a different rule. If the redemption of the Series A Preferred Stock is not treated as a dividend, it will generally generate gain or loss that will be measured as provided above under "Taxation of Gains upon Sales or Exchanges (Not including Redemptions)" for a sale or exchange of Series A Preferred Stock. Gain on the redemption of Series A Preferred Stock will generally be recognized and will be subject to income tax. If the stockholder of the Series A Preferred Stock is an individual resident of Puerto Rico and the gain is a long-term capital gain, the gain will be taxable at a maximum rate of 20%. If the stockholder is a Puerto Rico corporation and the gain is a long-term capital gain, the gain will qualify for the alternative tax rate of 25%. If the stockholder of the Series A Preferred Stock is an individual who is not a resident of Puerto Rico or a foreign corporation or foreign partnership, any gain realized by the holder on the redemption of the Series A Preferred Stock that is not taxable as a dividend may be subject to Puerto Rico income tax if the gain constitutes income from sources within Puerto Rico or is effectively connected with a trade or business conducted by the holder in Puerto Rico. The Puerto Rico income tax law does not clearly provide a source of income rule for a gain of this nature. As a result thereof, these prospective shareholders should be aware that a gain realized from a redemption of the Series A Preferred Stock may be subject to Puerto Rico income tax. 25 27 ESTATE AND GIFT TAXATION The transfer of Series A Preferred Stock by inheritance or gift by an individual who is a resident of Puerto Rico at the time of his or her death or at the time of the gift will not be subject to estate and gift tax if the individual is a citizen of the United States who acquired his or her citizenship solely by reason of birth or residence in Puerto Rico. Other individuals should consult their own tax advisors in order to determine the appropriate treatment for Puerto Rico estate and gift tax purposes of the transfer of the Series A Preferred Stock by death or gift. MUNICIPAL LICENSE TAXATION Individuals and corporations that are not engaged in a trade or business in Puerto Rico will not be subject to municipal license tax on dividends paid on the Series A Preferred Stock or on any gain realized on the sale, exchange or redemption of the Series A Preferred Stock. A corporation or partnership, Puerto Rico or foreign, that is engaged in a trade or business in Puerto Rico will generally be subject to municipal license tax on dividends paid on the Series A Preferred Stock and on the gain realized on the sale, exchange or redemption of the Series A Preferred Stock if the dividends or gain are attributable to that trade or business. The municipal license tax is imposed on the volume of business of the taxpayer, and the tax rates range from a maximum of 1.5% for financial businesses to a maximum of 0.5% for other businesses. PROPERTY TAXATION The Series A Preferred Stock will not be subject to Puerto Rico property tax. UNITED STATES TAXATION The following discussion is limited to the United States federal tax consequences of the ownership and disposition of the Series A Preferred Stock by U.S. Holders, as defined below, and corporations organized under the laws of Puerto Rico ("PR Corporations"). This discussion is based on the existing United States Internal Revenue Code of 1986 (the "Code") and proposed regulations of the U.S. Department of the Treasury promulgated thereunder, administrative pronouncements and judicial decisions, all of which are subject to change, even with retroactive effect. This discussion deals only with Series A Preferred Stock held by initial purchasers as capital assets within the meaning of Section 1221 of the Code. It does not discuss all of the tax consequences that may be relevant to a purchaser in light of that person's particular circumstances or to purchasers subject to special rules, such as entities that are taxed under the Code as partnerships, "Subchapter S Corporations," life insurance companies, tax exempt entities, dealers in securities, financial institutions, or to persons whose functional currency is not the U.S. dollar. As used herein, the term "U.S. Holder" means a beneficial owner of Series A Preferred Stock that does not own directly, constructively or by attribution 10% or more of the voting stock of the Company and is, for United States federal income tax purposes: - a citizen or resident of the United States, - a corporation organized under the laws of a state of the United States, 26 28 - a corporation organized under the laws of the United States or of any political subdivision thereof, or - an estate or trust the income of which is subject to United States federal income taxation regardless of its source. The term "U.S. Holder" does not include individual Puerto Rico residents who are not citizens or residents of the United States nor does it include PR Corporations. As used herein, the term "Puerto Rico U.S. Holder" means an individual U.S. Holder who is a bona fide resident of Puerto Rico during the entire taxable year (or, in certain cases, a portion thereof). OWNERSHIP AND DISPOSITION OF THE SERIES A PREFERRED STOCK Taxation of Dividends. General. Under the source of income rules of the Code, dividends on the Series A Preferred Stock will constitute gross income from sources outside the United States if less than 25% of Oriental Financial Group's gross income on an ongoing basis is effectively connected with a trade or business in the United States. Since its incorporation in 1972, Oriental Financial Group has not, nor does it expect in the future, that 25% or more of its gross income will be effectively connected with a trade or business in the United States. Accordingly, dividends on the Series A Preferred Stock distributed by Oriental Financial Group will constitute gross income from sources outside the United States so long as Oriental Financial Group continues to meet the gross income test described above. U.S. Holders other than Puerto Rico U.S. Holders. Subject to the discussion under "Passive Foreign Investment Company Rules" below, distributions made with respect to the Series A Preferred Stock, including the amount of any Puerto Rico taxes withheld on the distribution, will be includable in the gross income of a U.S. Holder, other than a Puerto Rico U.S. Holder, as foreign source gross income to the extent the distributions are paid out of current or accumulated earnings and profits of Oriental Financial Group as determined for United States federal income tax purposes. These dividends will not be eligible for the dividends received deduction generally allowed to U.S. Holders that are corporations. To the extent, if any, that the amount of any distribution by Oriental Financial Group exceeds its current and accumulated earnings and profits as determined under United States federal income tax principles, it will be treated first as a tax-free return of the U.S. Holder's tax basis in the Series A Preferred Stock and thereafter as capital gain. Subject to certain conditions and limitations contained in the Code, any Puerto Rico income tax imposed on dividends distributed by Oriental Financial Group in accordance with Puerto Rico law will be eligible for credit against the U.S. Holder's United States federal income tax liability. See "Puerto Rico Taxation -- Ownership and Disposition of Series A Preferred Stock - -- Taxation of Dividends" above. For purposes of calculating a U.S. Holder's United States foreign tax credit limitation, dividends distributed by Oriental Financial Group will generally constitute foreign source "passive income" or, in the case of certain U.S. Holders (those predominantly engaged in the active conduct of a banking, financing or similar business), foreign source "financial services income." Puerto Rico U.S. Holders. In general, and subject to the discussion under "Passive Foreign Investment Company Rules" below, distributions of dividends made by Oriental Financial Group on the Series A Preferred Stock to a Puerto Rico U.S. Holder will constitute gross income from sources within 27 29 Puerto Rico, will not be includable in the stockholder's gross income and will be exempt from United States federal income taxation. In addition, for United States federal income tax purposes, no deduction or credit will be allowed that is allocable to or chargeable against amounts so excluded from the Puerto Rico U.S. Holder's gross income. PR Corporations. In general, distributions of dividends made by Oriental Financial Group on the Series A Preferred Stock to a PR Corporation will not, in the hands of the PR Corporation, be subject to United States income tax if the dividends are not effectively connected with a United States trade or business of the PR Corporation and the PR Corporation is not treated as a domestic corporation for purposes of the Code. The Code provides special rules for PR Corporations that are "Controlled Foreign Corporations," "Personal Holding Companies," "Foreign Personal Holding Companies," or "Passive Foreign Investment Companies." Taxation of Capital Gains. U.S. Holders other than Puerto Rico U.S. Holders. A U.S. Holder, other than a Puerto Rico U.S. Holder, will recognize gain or loss on the sale or other disposition of Series A Preferred Stock, including redemptions treated as sales or exchanges of the Series A Preferred Stock under Section 302 of the Code, in an amount equal to the difference between the U.S. Holder's adjusted tax basis in the Series A Preferred Stock and the amount realized on the sale or other disposition. Subject to the discussion under "Passive Foreign Investment Company Rules" below, the gain or loss will be a capital gain or loss. U.S. Holders should consult their own tax advisors concerning the treatment of capital gains and losses. Redemptions of the Series A Preferred Stock that are not treated as sales or exchanges under Section 302 of the Code will generally be subject to income tax under the Code as dividends. Gain recognized by a U.S. Holder on the sale or other disposition of Series A Preferred Stock generally will be treated as United States source income. Puerto Rico U.S. Holders. In general, and subject to the discussion under "Passive Foreign Investment Company Rules" below, gain from the sale or exchange of the Series A Preferred Stock, including redemptions treated as sales or exchanges of the Series A Preferred Stock under Section 302 of the Code, by a Puerto Rico U.S. Holder that is a resident of Puerto Rico for purposes of Section 865(g)(1) of the Code (1) will constitute income from sources within Puerto Rico, (2) will not be includable in the stockholder's gross income and (3) will be exempt from United States federal income taxation. Also, no deduction or credit will be allowed that is allocable to or chargeable against amounts so excluded from the Puerto Rico U.S. Holder's gross income. Redemptions of the Series A Preferred Stock that are not treated as sales or exchanges under Section 302 of the Code will generally be subject to income tax under the Code as dividends. PR Corporations. In general, any gain derived by a PR Corporation from the sale or exchange of the Series A Preferred Stock will not, in the hands of the PR Corporation, be subject to United States income tax if the gain is not effectively connected with a United States trade or business of the PR Corporation and the PR Corporation is not treated as a domestic corporation for purposes of the Code. The Code provides special rules for PR Corporations that are "Controlled Foreign Corporations," "Personal Holding Companies," "Foreign Personal Holding Companies," or "Passive Foreign Investment Companies." Redemptions of the Series A Preferred Stock that are not treated as sales or exchanges under Section 302 of the Code will generally be subject to income tax under the Code as dividends. 28 30 Backup Withholding. Certain corporate U.S. Holders may be subject to backup withholding at the rate of 31% on dividends paid or the proceeds of a sale, exchange or redemption of Series A Preferred Stock. Generally, backup withholding applies only when the taxpayer fails to furnish or certify a proper taxpayer identification number or when the payor is notified by the IRS that the taxpayer has failed to report payments of interest and dividends properly. U.S. Holders should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining any applicable exemption. PASSIVE FOREIGN INVESTMENT COMPANY RULES The Code provides special rules for distributions received by U.S. Holders on stock of a Passive Foreign Investment Company ("PFIC") as well as amounts received from the sale or other disposition of PFIC stock. For purposes of these rules pledges are considered dispositions. Based upon certain proposed Treasury Regulations under the PFIC provisions of the Code (the "Proposed Regulations"), Oriental Financial Group believes that it has not been a PFIC for any of its prior taxable years and expects to conduct its affairs in a manner so that it will not meet the criteria to be considered a PFIC in the foreseeable future. If, contrary to Oriental Financial Group's expectation, the Series A Preferred Stock were considered to be shares of a PFIC for any fiscal year, a U.S. Holder would generally be subject to special rules, regardless of whether Oriental Financial Group remains a PFIC, with respect to (1) any "excess distribution" by Oriental Financial Group to the U.S. Holder and (2) any gain realized on the sale, pledge or other disposition of Series A Preferred Stock. An "excess distribution" is, generally, any distributions received by the U.S. Holder on the Series A Preferred Stock in a taxable year that are greater than 125% of the average annual distributions received by the U.S. Holder in the three preceding taxable years, or the U.S. Holder's holding period for the Series A Preferred Stock if shorter. Under these rules, (1) the excess distribution or gain would be allocated ratably over the U.S. Holder's holding period for the Series A Preferred Stock, (2) the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which Oriental Financial Group is a PFIC would be taxed as ordinary income, and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed on the resulting tax attributable to each such year. As an alternative to these rules, if Oriental Financial Group were a PFIC, U.S. Holders may, in certain circumstances, elect a mark-to-market treatment with respect to their Series A Preferred Stock, provided that the Series A Preferred Stock will constitute "marketable stock" for purposes of these rules. In general, the Proposed Regulations provide that Puerto Rico U.S. Holders would be subject to the rule described in (3) above only to the extent that any excess distribution or gain is allocated to a taxable year during which the individual held the Series A Preferred Stock and was not a bona fide resident of Puerto Rico during the entire taxable year or, in certain cases, a portion thereof. Under current law, if Oriental Financial Group is a PFIC in any year, a U.S. Holder who beneficially owns Series A Preferred Stock during that year must make an annual return on IRS Form 8621 that describes any distributions received from Oriental Financial Group and any gain realized on the disposition of Series A Preferred Stock. 29 31 ESTATE AND GIFT TAXATION The transfer of Series A Preferred Stock by inheritance or gift by an individual who is a resident of Puerto Rico at the time of his or her death or at the time of the gift will not be subject to U.S. federal estate and gift tax if the individual is a citizen of the United States who acquired his or her citizenship solely by reason of birth or residence in Puerto Rico. Other individuals should consult their own tax advisors in order to determine the appropriate treatment for U.S. federal estate and gift tax purposes of the transfer of the Series A Preferred Stock by death or gift. 30 32 UNDERWRITING Subject to the terms and conditions set forth in an underwriting agreement (the "Underwriting Agreement"), Oriental Financial Group has agreed to sell to each of the underwriters named below, and each of the underwriters severally has agreed to purchase from Oriental Financial Group, the aggregate number of shares of Series A Preferred Stock set forth opposite their names below.
UNDERWRITER NUMBER OF SHARES(1) ----------- ------------------- Santander Securities Corporation of Puerto Rico....................................................................... Keefe, Bruyette & Woods, Inc. ........................................................................................ Total.....................................................................................................1,225,000 =========
- -------------------------------------- (1) Assumes no exercise of the underwriters' over-allotment option Under the terms and conditions of the Underwriting Agreement, Oriental Financial Group is obligated to sell, and the underwriters are obligated to purchase, all of the shares of Series A Preferred Stock shown in the table above, if any of the shares of Series A Preferred Stock are purchased. The underwriters propose to offer the shares of Series A Preferred Stock to the public initially at the public offering price set forth on the cover page of this prospectus and to certain selected dealers at the public offering price less a concession not to exceed $ per share. The underwriters or the selected dealers may reallow a commission to certain other dealers not to exceed $ per share. After the offering to the public, the public offering price, the concession to selected dealers and the reallowance to other dealers may be changed by the underwriters. Oriental Financial Group has granted the underwriters an option exercisable for 30 days from the date of this prospectus, to purchase up to 180,000 additional shares of Series A Preferred Stock to cover over-allotments, if any, at the initial public offering price, less the underwriting discounts, as shown on the cover page of this prospectus. If the underwriters exercise this option, then each of the underwriters will have a firm commitment, subject to certain conditions contained in the Underwriting Agreement, to purchase a number of option shares proportionate to the underwriter's initial commitment as indicated in the table above. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of the shares of Series A Preferred Stock offered hereby. The offering of the Series A Preferred Stock is being conducted pursuant to Rule 2720(d) of the Conduct Rules of the National Association of Securities Dealers, Inc. because Oriental Financial Services Corp., an indirect wholly-owned subsidiary of Oriental Financial Group and registered broker-dealer, will participate as a member of the selling group for the initial public offering of the Series A Preferred Stock. In accordance with Rule 2720(d), Keefe, Bruyette & Woods, Inc. has acted as "qualified independent underwriter" and the price of the Series A Preferred Stock was no higher than that recommended by Keefe, Bruyette & Woods, Inc. as qualified independent underwriter. Keefe, Bruyette & Woods, Inc., in its role as qualified independent underwriter, has performed due diligence investigations and reviewed and participated in the preparation of this prospectus. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by Oriental Financial Group as well as the proceeds received by Oriental Financial Group from the offering, before deducting expenses. The amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional 180,000 shares. 31 33
Total Assuming Full Exercise of Over- Per Share Total Allotment Option --------- ----- ---------------- Public Offering Price..................................... $ 25.00 $30,625,000 $35,125,000 Underwriting Discounts.................................... $ 0.7875 $ 964,688 $ 1,106,438 Proceeds to Oriental Financial Group...................... $24.2125 $29,660,312 $34,018,562
Until the distribution of the Series A Preferred Stock is completed, rules of the Securities and Exchange Commission may limit the ability of the underwriters to bid for and purchase the Series A Preferred Stock. As an exception to these rules, the underwriters may engage in certain transactions that stabilize the price of the Series A Preferred Stock. These transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Series A Preferred Stock. If the underwriters create a short position in the Series A Preferred Stock in connection with the offering, i.e., if the underwriters sell more shares of Series A Preferred Stock than are set forth on the cover page of this prospectus, they may reduce that short position by purchasing shares of Series A Preferred Stock in the open market. The underwriters may also elect to reduce any short position by purchasing all or part of the over-allotment option described above. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of these purchases. Oriental Financial Group estimates that the total expenses of this offering, excluding underwriting discounts and commissions, will be $265,000. This amount includes the reimbursement of certain out-of-pocket expenses to the underwriters. In connection with this offering, Oriental Financial Group has agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments that the underwriters may be required to make in respect thereof. The New York Stock Exchange has approved for listing the Series A Preferred Stock under the symbol "OFGPrA." The underwriters have from time to time been customers of, engaged in transactions with, or performed services for, Oriental Financial Group and its subsidiaries in the ordinary course of business. The underwriters may continue to do so in the future. WHERE YOU CAN FIND MORE INFORMATION Oriental Financial Group files annual, quarterly and current reports, proxy statements and other information with the SEC. Oriental Financial Group has also filed with the SEC a Registration Statement on Form S-3, to register the Series A Preferred Stock being offered in this prospectus. This prospectus, which forms part of the Registration Statement, does not contain all of the information included in the Registration Statement. For further information about Oriental Financial Group and the shares of Series A Preferred Stock offered in this prospectus, you should refer to the Registration Statement and its exhibits. You may read and copy any document filed by Oriental Financial Group with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Oriental Financial Group files its SEC materials electronically with the SEC, so you can also review Oriental Financial Group's 32 34 filings by accessing the website maintained by the SEC at http://www.sec.gov. This site contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You can also obtain more information about Oriental Financial Group by visiting its website at http://www.orientalfinancial.com. The SEC allows Oriental Financial Group to "incorporate by reference" the information it files with them, which means Oriental Financial Group can disclose important information to you by referring to these documents. The information included in the following documents is incorporated by reference and is considered a part of this prospectus. The most recent information that Oriental Financial Group files with the SEC automatically updates and supersedes previously filed information. Oriental Financial Group has previously filed the following documents with the SEC and is incorporating them by reference into this prospectus: - Annual Report on Form 10-K for the year ended June 30, 1998; and - Quarterly Reports on Form 10-Q for the quarters ended September 30, 1998 and December 31, 1998. Oriental Financial Group also incorporates by reference all documents filed by it pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the date of this prospectus and until all the shares being offered by this prospectus are sold. You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. Oriental Financial Group has not authorized anyone else to provide you with different information. Oriental Financial Group is not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of those documents. Oriental Financial Group will provide, at no cost, to each person, including a beneficial owner, to whom this prospectus is delivered, upon written or oral request, a copy of any or all of the documents incorporated herein by reference, other than exhibits to these documents unless such exhibits are specifically incorporated by reference into such documents. Requests for copies should be directed to Oriental Financial Group Inc., Attention: Mr. Rafael Valladares, Senior Vice President and Controller, Hato Rey Tower, Suite 503, 268 Munoz Rivera Avenue, San Juan, Puerto Rico 00918, telephone: (787) 766-1986. LEGAL MATTERS The validity of the shares of Series A Preferred Stock offered hereby will be passed upon for Oriental Financial Group by McConnell Valdes, San Juan, Puerto Rico. As of March 31, 1999, attorneys working in McConnell Valdes owned, in the aggregate, approximately 59,887 shares of common stock of Oriental Financial Group. Certain legal matters will be passed upon for the underwriters by Pietrantoni Mendez & Alvarez LLP, San Juan, Puerto Rico. EXPERTS The consolidated financial statements of Oriental Financial Group as of June 30, 1998 and 1997 and for each of the three years in the period ended June 30, 1998, incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended June 30, 1998, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 33 35 ================================================================================ 1,225,000 SHARES ORIENTAL FINANCIAL GROUP INC. % NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A PRICE TO PUBLIC: $25 PER SHARE --------------------------------- PRELIMINARY PROSPECTUS --------------------------------- SANTANDER SECURITIES KEEFE, BRUYETTE & WOODS, INC. ---------------------- , 1999 ================================================================================ 36 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered, other than commissions and fees of the Underwriters. All of the amounts shown are estimates except the Securities and Exchange Commission registration fee and the NASD filing fee. Securities and Exchange Commission registration fee................................................................................... $ 9,764.75 NASD filing fee...................................................................................... 4,012.50 Printing and engraving expenses...................................................................... 20,000.00 NYSE listing fee..................................................................................... 14,750.00 Accounting fees and expenses......................................................................... 30,000.00 Legal fees and expenses.............................................................................. 135,000.00 Advertising.......................................................................................... 30,000.00 Miscellaneous expenses............................................................................... 21,472.75 ----------- Total.................................................................................... $265,000.00 ===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 1.02(B)(6) of the Puerto Rico General Corporation Law (the "PR-GCL") provides that a corporation may include in its certificate of incorporation a provision eliminating or limiting the personal liability of members of its board of directors or governing body for breach of a director's fiduciary duties. However, no such provision may eliminate or limit the liability of a director for breaching his duty of loyalty, failing to act in good faith, engaging in intentional misconduct or knowingly violating a law, paying an unlawful dividend or approving an unlawful stock repurchase, or obtaining an improper personal benefit. Article Ninth of Oriental Financial Group's certificate of incorporation, as amended, provides that the personal liability of the directors and officers of Oriental Financial Group for monetary damages shall be eliminated to the fullest extent permitted by the PR-GCL. Section 4.08 of the PR-GCL authorizes a Puerto Rico corporation to indemnify its officers and directors and to purchase and maintain insurance on behalf of its officers and directors against liabilities arising out and pending or threatened actions, suits or proceedings to which such officers or directors are or may be made parties by reason of being officers or directors of the corporation. Such rights of indemnification are not exclusive of any other rights to which such officers or directors may be entitled under any by-law, agreement, vote of shareholders or otherwise. Section 1 of Article VII of Oriental Financial Group's by-laws provides that directors, officers, employees and agents of Oriental Financial Group shall be indemnified to the fullest extent authorized by the PR-GCL against expenses and certain other liabilities arising out of legal action brought or threatened against them for their conduct on behalf Oriental Financial Group, provided that each such person acted in good faith and in a manner that he reasonably believed was in or not opposed to Oriental Financial Group's best interests. Indemnification by Oriental Financial Group is available in a criminal action only if such person had no reasonable cause to believe that his conduct was unlawful. Section 4 of Article VII of Oriental Financial Group's by-laws provides that Oriental Financial Group may maintain insurance covering certain liabilities of officers, directors, employees and agents of II-1 37 Oriental Financial Group, whether or not Oriental Financial Group would have the power or would be required to indemnify them against such liabilities. The resolutions of the board of directors adopted on March 30, 1999, approving the issuance and sale of the Series A Preferred Stock provide that, to the extent permitted by Oriental Financial Group's certificate of incorporation, as amended, and applicable law, Oriental Financial Group (1) will indemnify and hold harmless the directors and executive officers and their attorney-in-facts who signed this Registration Statement against any losses, claims, damages or liabilities they may become subject under the Securities Act of 1933, the Securities Exchange Act of 1934, any state securities or insurance laws or regulations of any other jurisdiction, insofar as such losses, claims, damages or liabilities arise in connection with this Registration Statement or any other registration statement filed in connection with the Series A Preferred Stock; and (2) shall reimburse each such person for any legal or other expenses reasonably incurred by him in connection with investigating or defending any such action or claim. ITEM 16. EXHIBITS.
EXHIBIT DESCRIPTION OF DOCUMENT ------- ----------------------- NO. --- 1 Form of Underwriting Agreement 3 Certificate of Incorporation, as amended, of Oriental Financial Group Inc. 4.1 Certificate of Designation designating the terms of the Series A Preferred Stock 4.2 Form of Series A Preferred Stock Certificate 5 Opinion regarding legality of McConnell Valdes 8 Opinion regarding tax matters of McConnell Valdes 12 Statement re: Computation of Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 23.1 Consent of PricewaterhouseCoopers LLP 23.2 Consents of McConnell Valdes (included in the opinions of counsel filed as Exhibits 5 and 8 hereto) 24.1 Power of Attorney (included in page II-4 hereof)
ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. II-2 38 (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Oriental Financial Group pursuant to the provision described under Item 15 above, or otherwise, Oriental Financial Group has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Oriental Financial Group of expenses incurred or paid by a director, officer, or controlling person of Oriental Financial Group in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, Oriental Financial Group will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-3 39 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in San Juan, Puerto Rico, on the 2nd day of April, 1999. ORIENTAL FINANCIAL GROUP INC. By: /s/ Jose Enrique Fernandez ----------------------------------------- Jose Enrique Fernandez Chairman of the Board of Directors, President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Jose Enrique Fernandez, Rafael Valladares and Andres Morgado, each acting singly, his true and lawful attorneys-in-fact and agents each with full power of substitution and re-substitution for him and in his name, place and stead in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any registration statement relating to the same offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(a) under the Securities Act of 1933, and to file the same, with all entities thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to interest and purposes as he might or could do in person, hereby notifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. II-4 40 Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ------ ---- Chairman of the Board of Directors, /s/Jose Enrique Fernandez President and --------------------------------- Chief Executive Officer March 30, 1999 Jose Enrique Fernandez --------------------------------- Senior Vice President and /s/Rafael Valladares Controller --------------------------------- (Principal Financial Officer) March 30, 1999 Rafael Valladares --------------------------------- /s/Pablo I. Altieri Director --------------------------------- Pablo I. Altieri March 30, 1999 --------------------------------- /s/Efrain Archilla Director --------------------------------- Efrain Archilla March 30, 1999 --------------------------------- /s/Julian S. Inclan --------------------------------- Julian S. Inclan Director March 30, 1999 --------------------------------- /s/Diego Perdomo Alvarez --------------------------------- Diego Perdomo Alvarez Director March 30, 1999 --------------------------------- /s/Alberto Richa Angelini --------------------------------- Alberto Richa Angelini Director March 30, 1999 --------------------------------- /s/Emilio Rodriguez, Jr. --------------------------------- Emilio Rodriguez, Jr. Director March 30, 1999 --------------------------------- /s/Maricarmen Aponte --------------------------------- Maricarmen Aponte Director March 30, 1999 --------------------------------- /s/Francisco Arrivi --------------------------------- Francisco Arrivi Director March 30, 1999 ---------------------------------
II-5 41 INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO. ----------- ----------------------- -------- 1 Form of Underwriting Agreement 3 Certificate of Incorporation, as amended, of Oriental Financial Group Inc. 4.1 Certificate of Designation designating the terms of the Series A Preferred Stock 4.2 Form of Series A Preferred Stock Certificate 5 Opinion regarding legality of McConnell Valdes 8 Opinion regarding tax matters of McConnell Valdes 12 Statement re: Computation of Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 23.1 Consent of PricewaterhouseCoopers LLP 23.2 Consents of McConnell Valdes (included in the opinions of counsel filed as Exhibits 5 and 8 hereto) 24.1 Power of Attorney (included in page II-4 hereof)
EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1 =============================================================================== ORIENTAL FINANCIAL GROUP INC. A Puerto Rico Corporation 1,225,000 Shares of ____% Noncumulative Monthly Income Preferred Stock, Series A ($25 liquidation preference per share) UNDERWRITING AGREEMENT Dated: __________, 1999 =============================================================================== 2 TABLE OF CONTENTS
Page UNDERWRITING AGREEMENT.............................................................................2 SECTION 1. Representations and Warranties.............................................2 (a) Representations and Warranties by the Company.......................................2 (b) Officer's Certificates.............................................................11 SECTION 2. Sale and Delivery to Underwriters; Closing................................11 (a) Initial Securities.................................................................11 (b) Option Securities..................................................................11 (c) Payment............................................................................11 (d) Denominations; Registration........................................................12 SECTION 3. Covenants of the Company..................................................13 (a) Compliance with Securities Regulations and Commission Requests.....................13 (b) Filing of Amendments...............................................................13 (c) Delivery of Registration Statements................................................13 (d) Delivery of Prospectuses...........................................................14 (e) Continued Compliance with Securities Laws..........................................14 (f) Blue Sky Qualifications............................................................14 (g) Rule 158...........................................................................15 (h) Use of Proceeds....................................................................15 (i) Listing............................................................................15 (j) Restriction on Sale of Securities..................................................15 (k) Reporting Requirements.............................................................15 (l) Compliance with Undertakings.......................................................15 (m) Additional Information.............................................................15 SECTION 4. Payment of Expenses.......................................................16 (a) Expenses...........................................................................16 (b) Termination of Agreement...........................................................16 SECTION 5. Conditions of Underwriters' Obligations...................................16 (a) Effectiveness of Registration Statement............................................16 (b) Opinion of Counsel for Company.....................................................17 (c) Opinion of Counsel for Underwriters................................................17 (d) Officers' Certificate..............................................................17 (e) Accountant's Comfort Letter........................................................17 (f) Bring-down Comfort Letter..........................................................18 (g) Approval of Listing................................................................18
i 3 (h) No Objection.......................................................................18 (i) Conditions to Purchase of Option Securities........................................18 (j) Additional Documents...............................................................19 (k) Termination of Agreement...........................................................19 SECTION 6. Indemnification...........................................................19 (a) Indemnification of Underwriters....................................................19 (b) Indemnification of Company, Directors and Officers by Underwriters.................20 (c) Actions against Parties; Notification..............................................21 (d) Settlement without Consent if Failure to Reimburse.................................21 SECTION 7. Contribution..............................................................22 SECTION 8. Representations, Warranties and Agreements to Survive Delivery............23 SECTION 9 Termination of Agreement..................................................23 (a) Termination; General...............................................................23 (b) Liabilities........................................................................24 SECTION 10. Default by One or More of the Underwriters................................24 SECTION 11. Notices...................................................................25 SECTION 12. Parties...................................................................25 SECTION 13. GOVERNING LAW AND TIME....................................................25 SECTION 14. Effect of Headings........................................................25 SECTION 15. Counterparts..............................................................25 SCHEDULES Schedule A - List of Underwriters.....................................Sch A-1 Schedule B - Pricing Information......................................Sch B-1 EXHIBITS Exhibit A - List of Subsidiaries.........................................A-1 Exhibit B - Form of Opinion of McConnell Valdes..........................B-1
ii 4 ORIENTAL FINANCIAL GROUP INC. (A Puerto Rico Corporation) 1,225,000 Shares of ____% Noncumulative Monthly Income Preferred Stock, Series A ($25 liquidation preference per share) UNDERWRITING AGREEMENT _____________, 1999 Santander Securities Corporation of Puerto Rico Keefe, Bruyette & Woods, Inc. c/o Santander Securities Corporation of Puerto Rico Torre Santander 221 Avenida Ponce de Leon, Suite 500 San Juan, Puerto Rico 00917-1825 Ladies and Gentlemen: ORIENTAL FINANCIAL GROUP INC., a Puerto Rico corporation (the "Company"), confirms its agreement with you, and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom you are acting as representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of the Company's ____% Noncumulative Monthly Income Preferred Stock, Series A ($25 liquidation preference per share) set forth in said Schedule A, and with respect to the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of 180,000 additional shares of such preferred stock to cover over-allotments, if any. The aforesaid 1,225,000 shares of preferred stock (the "Initial Securities") to be purchased by the Underwriters and all or any part of the 180,000 shares of preferred stock subject to the option described in Section 2(b) hereof (the "Option Securities") are hereinafter called, collectively, the "Securities". The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered. 5 The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333-_______ ) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus. Promptly after execution and delivery of this Agreement, the Company will prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations. The information included in such prospectus that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information". Each prospectus used before such registration statement became effective, and any prospectus that omitted, as applicable, the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto, the documents incorporated therein by reference and schedules thereto at the time it became effective and including the Rule 430A Information is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final prospectus in the form first furnished to the Underwriters for use in connection with the offering of the Securities is herein called the "Prospectus." For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus or the Prospectus (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Registration Statement, any preliminary prospectus or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") which is incorporated by reference in the Registration Statement, such preliminary prospectus or the Prospectus, as the case may be. SECTION 1. Representations and Warranties. (a) Representations and Warranties by the Company. The Company represents and warrants to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof, and agrees with each Underwriter, as follows: (i) Compliance with Registration Requirements. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 2 6 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither the Prospectus nor any amendments or supplements thereto, at the time the Prospectus or any such amendment or supplement was issued and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through the Representatives expressly for use in the Registration Statement or Prospectus. Each preliminary prospectus and the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. There are no contracts or other documents required to be filed as exhibits to the Registration Statement by the 1933 Act or the 1933 Act Regulations that have not been so filed. The documents which are incorporated by reference in any preliminary prospectus or the Prospectus or from which information is so incorporated by reference, when they became effective or were filed with the Commission, as the case may be, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations or the 1934 Act and the rules and regulations thereunder, as applicable, and did not, when such documents were so filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and any documents so filed and incorporated by reference subsequent to the effective date of the Registration Statement shall, when they are filed with the Commission, conform in all material respects with the 3 7 requirements of the 1933 Act and the 1933 Act Regulations and the 1934 Act and the rules and regulations thereunder, as applicable, and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (ii) Independent Accountants. The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iii) Financial Statements. The consolidated financial statements of the Company included or incorporated by reference in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, in the most recent preliminary prospectus), together with the related schedules and notes, present fairly the financial position of the Company and its Subsidiaries (as defined in Section 1(a)(vi) hereof) at the dates indicated and the consolidated statement of operations, stockholders' equity and cash flows of the Company and its Subsidiaries for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules, if any, included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Prospectus present fairly the information shown and have been compiled on a basis consistent with that of the audited financial statements included or incorporated by reference in the Registration Statement. (iv) No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a "Material Adverse Effect"), (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) except for regular quarterly dividends on the Company's Common Stock, par value $1.00 per share (the "Common Stock"), since December 31, 1998 there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (v) Good Standing of Company. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the Commonwealth of Puerto Rico with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified to transact business as a foreign corporation and is in good standing under the laws of each jurisdiction in which the 4 8 conduct of its business or ownership or leasing of its properties requires such qualification and where the failure to be so qualified would, individually or in the aggregate, have a Material Adverse Effect. The Company is registered as a bank holding company under the Bank Holding Company Act of 1956 (the "BHCA") in good standing with the Board of Governors of the Federal Reserve System (the "Federal Reserve"). (vi) Subsidiaries. The only subsidiaries of the Company (each a "Subsidiary and collectively the "Subsidiaries") are those listed on Exhibit A hereto. Except as set forth in the Prospectus (or if the Prospectus is not in existence, in the most recent preliminary prospectus) or as required in connection with the exercise of its rights as a creditor, or pursuant to a bona fide collateral pledge arrangement, neither the Company nor any Subsidiary owns, nor at the Closing Time or the Date of Delivery (if any Option Securities are purchased), will own an interest in any corporation, partnership, trust, joint venture or other business entity. Each Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus, and is duly qualified to transact business as a foreign corporation and is in good standing under the laws of each jurisdiction in which the conduct of its business or ownership or leasing of its properties requires such qualification and where the failure to be so qualified would, individually or in the aggregate, have a Material Adverse Effect. Except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of each Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of capital stock of any Subsidiary was issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary. (vii) Capitalization. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, described therein and the issuance of the Securities pursuant to this Agreement). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. The description of the securities of the Company in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent preliminary prospectus) is, and at the Closing Time and, if later, as of each Date of Delivery, will be, complete and accurate in all material respects. (viii) Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Company. 5 9 (ix) Authorization and Description of Common Stock. The description of the Common Stock of the Company contained in the Prospectus conforms in all material respects to the rights set forth in the instruments defining the same. (x) Authorization and Description of Securities. The Securities have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement, and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein will be validly issued and fully paid and non-assessable shares of capital stock of the Company; the description or the Securities contained in the Prospectus conforms in all material respects to the rights set forth in the instruments defining the same; no holder of the Securities will be subject to personal liability solely by reason of being such a holder; and the issuance of the Securities is not subject to the preemptive or other similar rights of any security holder of the Company. (xi) Absence of Defaults and Conflicts. Neither the Company nor any of its Subsidiaries is in violation of its articles of incorporation, charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any Subsidiary is subject (collectively, "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any Subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their assets, properties or operations. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any Subsidiary. 6 10 (xii) Absence of Labor Dispute. No labor dispute with the employees of the Company or any Subsidiary exists or, to the knowledge of the Company, is imminent. Neither the Company nor any Subsidiary is a party to a collective bargaining agreement. (xiii) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any Subsidiary, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder; the aggregate of all pending legal or governmental proceedings to which the Company or any Subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. (xiv) Accuracy of Exhibits. There are no contracts or documents which are required to be described in the Registration Statement or the Prospectus (or if the Prospectus is not in existence, in the most recent preliminary prospectus) or to be filed as exhibits thereto which have not been so described and filed as required. (xv) Possession of Intellectual Property. The Company and its Subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by them, and neither the Company nor any of its Subsidiaries has received any actual notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its Subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect. (xvi) Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations, state securities laws or the bylaws and rules of the National Association of Securities Dealers, Inc. (the "NASD") in connection with the purchase and distribution by the 7 11 Underwriters of the Securities to be sold hereby and the filing by the Company of the Certificate of Designation and Preferences with respect to the Securities with the Secretary of State of the Commonwealth of Puerto Rico ("Puerto Rico"). (xvii) Possession of Licenses and Permits. The Company and its Subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, Puerto Rico, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, except where the lack of such Governmental Licenses would not, singly or in the aggregate, have a Material Adverse Effect; the Company and its Subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. (xviii) Title to Property. The Company and its Subsidiaries have good and marketable title to all real property owned by the Company and its Subsidiaries and good title to all other properties and assets owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (a) are described in the Prospectus or (b) would not, singly or in the aggregate, have a Material Adverse Effect; and all of the leases and subleases material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in the Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease. (xix) Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (xx) Form S-3. The Company meets the requirements for use of Form S-3 under the 1933 Act Regulations. 8 12 (xxi) Environmental Laws. To the knowledge of the Company, except as described in the Registration Statement and except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor any of its Subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and its Subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its Subsidiaries and (D) there are no events or circumstances known to the Company that might reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or any of its Subsidiaries relating to Hazardous Materials or any Environmental Laws. (xxii) Registration Rights. There are no persons with registration rights or other similar rights to have any securities included in the offering described in the Registration Statement. (xxiii) Stop Orders. No court, supervisory or regulatory authority or arbitrator has, by order or otherwise, prohibited or suspended, or, to the knowledge of the Company, threatened to prohibit or suspend, the use of the Prospectus. (xxiv) Internal Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xxv) No Material Changes. Except as set forth in the Registration Statement and Prospectus (or, if the Prospectus is not in existence, the most recent preliminary prospectus), subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus and prior to Closing Time and, if later, each Date of Delivery, 9 13 (i) there has not been, and will not have been, any material adverse change in the business, properties, financial condition, net worth or results of operations of the Company and its Subsidiaries considered as one enterprise, (ii) neither the Company nor any of its Subsidiaries has entered into, or will have entered into any material transactions other than pursuant to this Agreement or in the ordinary course of its business, and (iii) the Company has not, and will not have, paid or declared any dividends or other distributions of any kind on any class of its capital stock, except for the payment or declaration of quarterly dividends, on the Company's Common Stock in the ordinary course of its business. (xxvi) No Material Misstatements. No statement, representation, or warranty made by the Company in this Agreement or made in any certificate or document required by this Agreement to be delivered to the Representatives was or will be, when made, inaccurate, untrue or incorrect in any material respect. (xxvii) No Manipulation. Neither the Company, its Subsidiaries nor any of their respective directors or officers has taken, nor will he, she or it take, directly or indirectly, any action designed, or which might reasonably be expected in the future, to cause or result in, under the Act or otherwise, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or otherwise. (xxviii) Approval for Listing. The Securities have been approved for listing on the New York Stock Exchange, subject only to notice of issuance. (xxix) Unlawful Payments. Neither the Company nor any of its Subsidiaries nor, to the Company's best knowledge, any employee or agent of the Company or any Subsidiary has made any payment of funds of the Company or any Subsidiary or received or retained any funds of the Company or any Subsidiary in violation of any law, rule or regulation which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus (or, if the Prospectus is not in existence, in the most recent preliminary prospectus). (xxx) Taxes. Each of the Company and its Subsidiaries has filed all foreign, federal, Puerto Rico and local tax returns that are required to be filed or has requested extensions thereof and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable. (xxxi) Oriental Bank. The deposit accounts of Oriental Bank and Trust, a Subsidiary of the Company (the "Bank"), are insured by the Federal Deposit Insurance Corporation ("FDIC") to the legal maximum, and no proceeding for the termination or revocation of such insurance is pending or threatened. The Bank is a member in good standing of the Federal Home Loan Bank of New York. 10 14 (xxxii) Regulatory Directives. None of the Company or its Subsidiaries or any of their respective directors or officers is subject to any order or directive of, or party to any agreement with, any regulatory agency having jurisdiction with respect to its business or operations except as disclosed in the Prospectus (or if the Prospectus is not in existence, in the most recent preliminary prospectus). (b) Officer's Certificates. Any certificate signed by any officer of the Company or any of its Subsidiaries delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to Underwriters; Closing. (a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (b) Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional 180,000 shares of the Company's ____% Noncumulative Monthly Income Preferred Stock, Series A ($25 liquidation preference per share) at the price per share set forth in Schedule B. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Representatives to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as the Representatives in their discretion shall make to eliminate any sales or purchases of fractional shares. (c) Payment. Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Pietrantoni Mendez & Alvarez, counsel to the Underwriters, Suite 1901, Popular Center Building, San Juan, Puerto Rico 00918, or at such other place as shall be agreed upon by the Representatives and the Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given date) business day after the 11 15 date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called "Closing Time"). The Initial Securities to be purchased by each Underwriter hereunder will be represented by one or more definitive certificates registered in the name of Cede & Co., which will be deposited by or on behalf of the Company with the Depository Trust Company ("DTC") or its designated custodian. In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company. Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them, duly endorsed for transfer or by causing DTC to credit the Securities to the account of each Underwriter in the case of the Initial Securities. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Each Representative, individually and not as Representatives of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities and the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. (d) Denominations; Registration. Certificates for the Initial Securities and the Option Securities, if any, shall be in definitive form and in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives in San Juan, Puerto Rico not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be at the office of DTC or its designated custodian. (e) Appointment of Qualified Independent Underwriter. The Company hereby confirms its engagement of Keefe, Bruyette & Woods, Inc. ("Keefe Bruyette") as, and Keefe Bruyette hereby confirms its agreement with the Company to render services as, a "qualified independent underwriter" within the meaning of Rule 2720 of the Conduct Rules of the NASD with respect to the offering and sale of the Securities. Keefe Bruyette, solely in its capacity as qualified independent underwriter and not otherwise, is referred to herein as the "Independent Underwriter". The sale of the Securities shall be conducted pursuant to Rule 2720(c) of the Conduct Rules of the NASD because Oriental Financial Services Inc., a registered-broker and member of the NASD, is an affiliate of the Company under the 12 16 Rule 2720 of the Conduct Rules of the NASD, and is participating as a member of the selling group for the Securities. SECTION 3. Covenants of the Company. The Company covenants with each Underwriter as follows: (a) Compliance with Securities Regulations and Commission Requests. The Company, subject to Section 3(b), will comply with the requirements of Rule 430A, and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) Filing of Amendments. The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)) or of any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, and will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall object. (c) Delivery of Registration Statements. The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. 13 17 (d) Delivery of Prospectuses. The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (e) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (f) Blue Sky Qualifications. The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions as the Representatives may designate and to maintain such qualifications in effect for a period of not less than one year from the effective date of the Registration Statement and any Rule 462(b) Registration Statement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the date of the Registration Statement and any Rule 462(b) Registration Statement. 14 18 (g) Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (h) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds". (i) Listing. The Company will use its best efforts to effect the listing of the Securities on the New York Stock Exchange. (j) Restriction on Sale of Securities. During a period of 90 days from the date of the Prospectus, the Company will not, without the prior written consent of the Representatives, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of the Company's preferred stock (the "Preferred Stock") or any securities convertible into or exercisable or exchangeable for Preferred Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Preferred Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Preferred Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to the Securities to be sold hereunder. (k) Reporting Requirements. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the rules and regulations of the Commission thereunder. (l) Compliance with Undertakings. The Company will comply with all the provisions of all undertakings contained in the Registration Statement. (m) Additional Information. During a period of five years commencing on the date the Registration Statement is declared effective by the Commission, the Company will furnish to the Representatives and each other Underwriter who may so request copies of such financial statements and other periodic and special reports as the Company may from time to time distribute generally to the holders of any class of its capital stock, and will furnish to the Representatives and each other Underwriter who may so request a copy of each annual or other report it shall be required to file with the Commission. SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay, or reimburse, if paid by the Representatives, all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the 15 19 preparation, printing and delivery to the Underwriters of this Agreement, any agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus and of the Prospectus and any amendments or supplements thereto, (vii) the fees and expenses of any transfer agent or registrar for the Securities, (viii) the filing fees incident to, and the disbursements of counsel to the Underwriters in connection with the review by the NASD of the terms of the sale of the Securities and (ix) the fees and expenses incurred in connection with the listing of the Securities in the New York Stock Exchange. Except as provided in Sections 6 and 7 and subparagraph (b) below, the Company will reimburse the Underwriters for all of their costs and expenses (including the fees and disbursements of their counsel, which fees shall not in the aggregate exceed $50,000), stock transfer taxes payable on resale of any of the Securities by them and any advertising expenses connected with any offers they may make. (b) Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 5. Conditions of Underwriters' Obligations. The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the Company or any Subsidiary of the Company delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A). (b) Opinion of Counsel for Company. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of McConnell Valdes, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together 16 20 with signed or reproduced copies of such letter for each of the other Underwriters, to the effect set forth in Exhibit B hereto and to such further effect as counsel to the Underwriters may reasonably request. Such counsel may state that, insofar as such opinions involve factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its Subsidiaries and certificates of public officials. (c) Opinion of Counsel for Underwriters. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time of Pietrantoni Mendez & Alvarez LLP, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters with respect to the issuance and sale to the Securities and other related matters as the Underwriters may reasonably require. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its Subsidiaries and certificates of public officials. (d) Officers' Certificate. At Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no Material Adverse Effect, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order or similar proceeding suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or, to such officers' knowledge, are contemplated by the Commission. (e) Accountant's Comfort Letter. At the time of the execution of this Agreement, the Representatives shall have received from PricewaterhouseCoopers LLP a letter dated such date, in form and substance reasonably satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the Underwriters, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (f) Bring-down Comfort Letter. At Closing Time, the Representatives shall have received from PricewaterhouseCoopers LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the specified date referred to shall be a date not more than five business days prior to Closing Time. 17 21 (g) Approval of Listing. At Closing Time, the Securities shall have been approved for listing on the New York Stock Exchange, subject only to official notice of issuance. (h) No Objection. The NASD shall have confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. (i) Conditions to Purchase of Option Securities. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company or any Subsidiary of the Company hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received: Officers' Certificate. A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at Closing Time pursuant to Section 5(d) hereof remains true and correct as of such Date of Delivery. Opinion of Counsel for the Company. The favorable opinion of McConnell Valdes, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof. Opinion of Counsel for Underwriters. The favorable opinion of Pietrantoni Mendez & Alvarez LLP, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof. Bring-down Comfort Letter. A letter from PricewaterhouseCoopers LLP, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(f) hereof, except that the "specified date" in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Date of Delivery. (j) Additional Documents. At Closing Time and at each Date of Delivery counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein 18 22 contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. (k) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities on a Date of Delivery which is after Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Company at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect. SECTION 6. Indemnification. (a) (1) Indemnification of Underwriters. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement 19 23 or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (2) In addition to and without limitation of the Company's obligation to indemnify Keefe Bruyette, as an Underwriter, the Company also agrees to indemnify and hold harmless the Independent Underwriter and each person, if any, who controls the Independent Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act from and against any and all loss, liability, claim, damage, and expense whatsoever, as incurred, incurred as a result of the Independent Underwriter's participation as a "qualified independent underwriter" within the meaning of Rule 2720 of the Conduct Rules of the NASD in connection with the offering of the Securities. (b) Indemnification of Company, Directors and Officers by Underwriters. Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a)(1) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). The Company acknowledges that, for all purposes of this Agreement, the amounts of the selling concession and reallowance set forth under the heading "Underwriting" contained in the Prospectus constitute the only information relating to any Underwriter furnished in writing to the Company expressly for inclusion in the preliminary prospectus, the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto). (c) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Sections 6(a)(1) above, counsel to the indemnified parties shall be selected by the Representatives, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in 20 24 connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances; provided, that, if indemnity is sought pursuant to Section 6(a)(2), then, in addition to the fees and expenses of such counsel for the indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses of not more than one counsel (in addition to any local counsel) separate from its own counsel and that of the other indemnified parties for the Independent Underwriter in its capacity as a "qualified independent underwriter" and all persons, if any, who control the Independent Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of 1934 Act in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances if, in the reasonable judgment of the Independent Underwriter, there may exist a conflict of interest between the Independent Underwriter and the other indemnified parties. Any such separate counsel for the Independent Underwriter and such control persons of the Independent Underwriter shall be designated in writing by the Independent Underwriter. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Sections 6(a)(1)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. SECTION 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause 7(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 7(i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. 21 25 The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus, bear to the aggregate initial public offering price of the Securities as set forth on such cover. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that Keefe Bruyette will not receive any additional benefits hereunder for serving as the Independent Underwriter in connection with the offering and sale of the securities. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director of the Company and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters' respective 22 26 obligations to contribute pursuant to this Section 7 are several in proportion to the number of Securities set forth opposite their respective names in Schedule A hereto and not joint. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company and its Subsidiaries submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company and shall survive delivery of the Securities to the Underwriters. SECTION 9 Termination of Agreement. (a) Termination; General. The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (and with respect to Option Securities, any applicable Date of Delivery) (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the New York Stock Exchange, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by the order of the Commission, the NASD or any other governmental authority or (iv) if a banking moratorium has been declared by Federal, New York or Puerto Rican authorities. (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect. SECTION 10. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail or refuse at Closing Time or at a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set 23 27 forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date and arrangements satisfactory to the remaining Underwriters and the Company for the purchase of such shares are not made within 36 hours of such default, this Agreement, or with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery, shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either the Representatives or the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives at Santander Securities Corporation of Puerto Rico, Torre Santander, 221 Avenida Ponce de Leon, Suite 500, San Juan, Puerto Rico, 00917-1825, Attention: Director of Investment Banking, to Keefe, Bruyette & Woods, Inc. at __________________, Attention: ___________, and notices to the Company shall be directed to the Company at Hato Rey Tower, Suite 503, 268 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918, Attention: President. SECTION 12. Parties. This Agreement shall inure to the benefit of and be binding upon the Underwriters, the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any 24 28 legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF PUERTO RICO. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO PUERTO RICO TIME. SECTION 14. Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters and the Company in accordance with its terms. Very truly yours, ORIENTAL FINANCIAL GROUP INC. By: ---------------------------------- Name: Title: CONFIRMED AND ACCEPTED, as of the date first above written: SANTANDER SECURITIES CORPORATION OF PUERTO RICO By: ---------------------------------- Name: Title: 25 29 KEEFE, BRUYETTE & WOODS, INC. By: ---------------------------------- Name: Title: For themselves and as Representatives of the other Underwriters named in Schedule A hereto. 26 30 SCHEDULE A
UNDERWRITERS NUMBER OF ------------ SECURITIES ---------- Santander Securities Corporation of Puerto Rico............................. Keefe, Bruyette & Woods, Inc................................................ Total..................................................... 1,225,000 =========
27 31 SCHEDULE B ORIENTAL FINANCIAL GROUP INC. 1,225,000 Shares ____% Noncumulative Monthly Income Preferred Stock, Series A ($25 liquidation preference per share) 1. The initial public offering price per share for the Securities shall be $25.00. 2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $_________, being an amount equal to the initial public offering price set forth above less $_______ per share; provided that the purchase price per share for any Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. 3. The dividend rate on the Securities will be ____% per annum of their liquidation preference. 4. The Securities will be subject to redemption at the option of the Company commencing on ______________, at declining prices, as described in the Prospectus. 32 EXHIBIT A LIST OF SUBSIDIARIES 1. Oriental Bank and Trust 2. Oriental Financial Services Corp. A-1 33 EXHIBIT B FORM OF OPINION OF MCCONNELL VALDES, AS COMPANY COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(C) (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the Commonwealth of Puerto Rico, and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus. (ii) Each of the Subsidiaries has been duly incorporated and is validly existing as a corporation (and in the case of the Bank as a commercial bank) in good standing under the laws of the Commonwealth of Puerto Rico, and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus. (iii) The Company is registered as a bank holding company under the Bank Holding Company Act of 1956. (iv) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus. (v) The Company is duly qualified as a foreign corporation to transact business in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify would not result in a Material Adverse Effect. (vi) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to the Underwriting Agreement or pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Prospectus); the shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any security holder of the Company. (vii) The Securities have been duly authorized for issuance and sale to the Underwriters pursuant to the Underwriting Agreement and, when issued and delivered by the B-1 34 Company pursuant to the Underwriting Agreement against payment of the consideration set forth in the Underwriting Agreement, will be validly issued and fully paid and non-assessable; no holder of the Securities is or will be subject to personal liability for obligations of the Company solely by reason of being such a holder; the Securities conform to the provisions of the certificate of designation of the Company creating the Securities (the "Certificate of Designation") and the rights, preferences and other terms of the Securities are as set forth in the Certificate of Designation relating thereto, and all such provisions are valid under the laws of the Commonwealth of Puerto Rico. (viii) The issuance of the Securities is not subject to the preemptive or other similar rights of any security holder of the Company. (ix) Each Subsidiary has been duly incorporated and is validly existing as a corporation (and in the case of the Bank, as a commercial bank) in good standing under the laws of the Commonwealth of Puerto Rico, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus, and each Subsidiary is duly qualified as a foreign corporation to transact business in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, has been duly authorized and validly issued, is fully paid and non-assessable and, to the best of our knowledge, is owned by the Company, directly or through a Subsidiary, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; and none of the outstanding shares of capital stock of any Subsidiary was issued in violation of the preemptive or similar rights of any security holder of any Subsidiary. (x) The Company has full legal right, power, and authority to enter into the Underwriting Agreement and to consummate the transactions provided for therein. The Underwriting Agreement has been duly authorized, executed and delivered by the Company, and assuming due authorization, execution and delivery by each other party thereto, is a valid and binding agreement of the Company, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws now or hereafter in effect relating to or affecting creditors' rights generally or by general principles of equity relating to the availability of remedies and except as rights to indemnity and contribution may be limited by federal, state or Puerto Rico securities laws or the public policy underlying such laws. (xi) The Registration Statement has been declared effective under the 1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement, or any amendment thereto and no order directed at any document incorporated by reference in the Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or threatened by the Commission. B-2 35 (xii) The Registration Statement, the Rule 430A Information, the Prospectus and each amendment or supplement to the Registration Statement and Prospectus, and the documents incorporated therein by reference, as of their respective filing, effective or issue dates, as the case may be (other than the financial statements, notes to the financial statements, financial tables and other financial information and supporting schedules included therein or omitted therefrom or contained in the documents incorporated by reference therein, as to which we need express no opinion), complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and, in the case of the documents incorporated by reference, the 1934 Act and the rules and regulations of the Commission thereunder. (xiii) The form of certificate used to evidence the Securities complies in all material respects with all applicable Commonwealth of Puerto Rico statutory requirements, with any applicable requirements of the Certificate of Incorporation and By-laws of the Company and the requirements of the New York Stock Exchange. The Securities have been duly authorized for listing on the New York Stock Exchange. (xiv) To the best of our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any Subsidiary is a party, or to which the property or assets of the Company or any Subsidiary is subject, before or brought by any court or governmental agency or body, domestic or foreign, of a character required to be disclosed in the Registration Statement or the Prospectus which is not so disclosed therein, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in the Underwriting Agreement or the performance by the Company of its obligations thereunder. (xv) The information in the Prospectus under "Risk Factors--Payment of Dividends", "Risk Factors--Holding Company Structure", "Description of Series A Preferred Stock", "Description of Capital Stock", "Taxation-United States Taxation", "Taxation-Puerto Rico Taxation" and in the Registration Statement under Item 15, to the extent that it constitutes a discussion of federal or Puerto Rico law, summaries of legal matters involving federal or Puerto Rico law, the Company's Certificate of Incorporation and By-laws or legal proceedings, or legal conclusions, has been reviewed by us and is accurate and complete in all material respects; and our opinion set forth under "Taxation" is confirmed. The Securities conform as to legal matters in all material respects to the descriptions thereof in the Prospectus. (xvi) To the best of our knowledge, there are no statutes or regulations that are required to be described in the Prospectus that are not described as required. (xvii) All descriptions in the Registration Statement of contracts and other documents to which the Company or its Subsidiaries are a party are accurate in all material respects; to the best of our knowledge, there are no franchises, contracts, indentures, B-3 36 mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto, and the descriptions thereof or references thereto are correct in all material respects. (xviii) To the best of our knowledge, neither the Company nor any Subsidiary is in violation of its articles of incorporation or by-laws and no default by the Company or any Subsidiary exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed or incorporated by reference as an exhibit to the Registration Statement. (xix) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign (other than under the 1933 Act and the 1933 Act Regulations, which have been obtained, the filing of the Certificate of Designation with the Puerto Rico Department of State which has been made, or as may be required under the securities or blue sky laws of the various states, as to which blue sky laws we express no opinion) is necessary or required in connection with the due authorization, execution and delivery of the Underwriting Agreement or for the offering, issuance, sale or delivery of the Securities. (xx) The execution, delivery and performance of the Underwriting Agreement and the consummation of the transactions contemplated in the Underwriting Agreement and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Company with its obligations under the Underwriting Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(xi) of the Underwriting Agreement) under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to us, to which the Company or any Subsidiary is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any Subsidiary is subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a Material Adverse Effect), nor will such action result in any violation of the provisions of the articles of incorporation or by-laws of the Company or any Subsidiary, or any applicable law, statute, rule, regulation, judgment, order, writ or decree, known to us, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their respective properties, assets or operations. B-4 37 (xxi) To the best of our knowledge, there are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act. (xxii) The Company is not, and upon the issuance and sale of the Securities as contemplated in the Underwriting Agreement and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the 1940 Act. (xxiii) The deposit accounts of the Bank are insured by the FDIC to the legal maximum, and to the best of our knowledge, no proceeding for the termination or revocation of such insurance is pending or threatened. The Bank is a member of the Federal Home Loan Bank of New York. (xxiv) To the best of our knowledge, none of the Company, its Subsidiaries, or any of their respective directors or officers is subject to any order or directive of, or is a party to any agreement with, any federal or Puerto Rico securities, banking or mortgage banking regulatory agency having jurisdiction with respect to the business or operations of the Company or the Subsidiaries except as disclosed in the Registration Statement or the Prospectus and except for any such order, directive or agreement which would not have a Material Adverse Effect. (xxv) To the best of our knowledge, the conduct of the respective businesses of the Company and its Subsidiaries is not in violation of any federal or Puerto Rico banking, mortgage banking or securities law, which violation is likely to have a Material Adverse Effect. Each of the Company and the Subsidiaries has obtained and, to our knowledge, is operating in compliance with, all authorizations, licenses, orders and directives required by federal and Puerto Rico banking, mortgage banking or securities laws which are material to the conduct of their respective businesses. To our knowledge, all such authorizations, licenses, orders or directives are valid and in full force and effect and neither the Company nor the Subsidiaries have received any notice of any proceeding relating to the revocation or modification of any such license, authorization or order. Nothing has come to our attention that would lead us to believe that the Registration Statement or any amendment thereto, including the documents incorporated therein by reference and the Rule 430A Information (except for financial statements, notes to the financial statements, financial tables and other financial information and schedules and other financial data included therein or omitted therefrom or contained in the documents incorporated therein by reference, as to which we need make no statement), at the time such Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements, notes to the financial statements, financial tables and other financial information and schedules and other financial data included therein or omitted therefrom or contained in the documents therein incorporated by B-5 38 reference, as to which we need make no statement), at the time the Prospectus was issued, at the time any such amended or supplemented prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). B-6 EX-3 3 AMENDED AND RESTATED CERTIFICATE 1 EXHIBIT 3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ORIENTAL FINANCIAL GROUP INC FIRST: The name of the corporation (hereinafter called the Corporation) is "Oriental Financial Group Inc." SECOND: The principal office of the Corporation in the Commonwealth of Puerto Rico is located at Hato Rey Tower, 268 Munoz Rivera Avenue, Suite 501, Hato Rey, Puerto Rico in the Municipality of San Juan, Puerto Rico. The name of the resident agent of the Corporation is CT Corporation System and its address is 361 San Francisco Street, 4th Floor, San Juan, Puerto Rico 00901. THIRD: The purpose of the Corporation is to engage, for profit, in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the Commonwealth of Puerto Rico. FOURTH: The authorized capital of the Corporation shall be FORTY FIVE MILLION DOLLARS ($45,000,000) represented by FORTY MILLION (40,000,000) shares of common stock, $1.00 par value per share, and FIVE MILLION (5,000,000) shares of preferred stock, $1.00 par value per share. The shares may be issued by the Corporation from time to time as authorized by the Board of Directors without the further approval of shareholders, except to the extent that such approval is required by governing law, rule or regulation. The Board of Directors is expressly authorized to provide, when it deems necessary, for the issuance of shares of preferred stock in one or more series, with such voting powers, full or limited, but not to exceed one vote per share, or without voting powers; and with such designations, preferences, rights, qualifications, limitations or restrictions thereof, as shall be expressed in the resolution or resolutions of the Board of Directors, authorizing such issuance, including (but without limiting the generality of the foregoing) the following: (a) the designation of such series, the number of shares to constitute such series and the stated value thereof if different from the par value thereof; (b) the dividend rate of such series, the conditions and dates upon which the dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any other class or classes of capital stock of the Corporation, and whether such dividends shall be cumulative or non-cumulative; 2 2 (c) whether the shares of such series shall be subject to redemption by Corporation, and if made subject to such redemption, the terms and conditions of such redemption; (d) the terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series; (e) whether the shares of such series shall be convertible and if provision be made for conversion, the terms of such conversion; (f) the extent, if any, to which the holders of such shares shall be entitled to vote; provided, however, that in no event, shall any holder of any series of preferred stock be entitled to more than one vote for each such share; (g) the restrictions and conditions, if any, upon the issue or re-issue of any additional preferred stock ranking on a parity with or prior to such shares as to dividends or upon dissolution; (h) the rights of the holders of such shares upon dissolution of, or upon distribution of assets of the Corporation, which rights may be different in the case of a voluntary dissolution; and (i) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof. The powers, preferences and relative, participating, optional and other special rights, of each series of preferred stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. All shares of any one series of preferred stock shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall accrue and/or be cumulative. FIFTH: No holder of the capital stock of the Corporation shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever of the Corporation, or of securities convertible into stock of any class whatsoever, whether now or hereafter authorized, or whether issued for cash or other consideration or by way of a dividend. SIXTH: The name, place of residence and postal address of the sole incorporator are as follows: 3 3
Name Place of Residence and Postal Address ---- ------------------------------------- Pedro Maldonado Carretera 971 Kilometro 12.2 Barrio Sonadora Naguabo, Puerto Rico P.O. Box 364225 San Juan, Puerto Rico 00936-4225
SEVENTH: The Corporation is to have perpetual existence. EIGHTH: For the management of the business and for the conduct of the affairs of the Corporation, and in further creation, definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders, it is further provided: 1. DIRECTORS AND NUMBER OF DIRECTORS. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors. The number of directors of the Corporation shall be fixed by, or in the manner provided in, the by-laws. The directors of the Corporation need not be stockholders. 2. CLASSIFICATION AND TERM. The Board of Directors, other than those who may be elected by the holders of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation, shall be divided into three classes as nearly equal in number as possible, with one class to be elected annually. The term of office of the initial directors shall be as follows: the term of directors of the first class shall expire at the first annual meeting of stockholders after the effective date of this Certificate of Incorporation; the term of office of the directors of the second class shall expire at the second annual meeting of stockholders after the effective date of this Certificate of Incorporation; and the term of office of the third class shall expire at the third annual meeting of stockholders after the effective date of this Certificate of Incorporation; and, as to directors of each class, when their respective successors are elected and qualified. At each annual meeting of stockholders, directors elected to succeed those whose terms are expiring shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders and when their respective successors are elected and qualified. 3. CUMULATIVE VOTING. At each annual meeting of stockholders in which more than one director is being elected, every stockholder entitled 4 4 to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by the stockholder for as many persons as there are directors to be elected and for whose election the stockholder has a right to vote, or to cumulate the votes by giving one candidate as many votes as the number of such directors to be elected multiplied by the number of his shares shall equal, or by distributing such votes on the same principle among any number of candidates. 4. VACANCIES. Except as otherwise fixed pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors, any vacancy occurring in the Board of Directors, including any vacancy created by reason of an increase in the number of directors, may be filled by a majority vote of the directors then in office, whether or not a quorum is present, or by a sole remaining director, and any director so chosen shall hold office for the remainder of the term to which the director has been selected and until such director's successor shall have been elected and qualified. When the number of directors is changed, the Board of Directors shall determine the class or classes to which the increased or decreased number of directors shall be apportioned; provided that no decrease in the number of directors shall shorten the term of any incumbent director. 5. REMOVAL. Subject to the rights of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation to elect directors, any director (including persons elected by directors to fill vacancies in the Board of Directors) may be removed from office only with cause by an affirmative vote of not less than a majority of the votes eligible to be cast by stockholders at a duly constituted meeting of stockholders called expressly for such purpose. 6. BY-LAWS. The Board of Directors is expressly authorized and empowered to make, alter and repeal the by-laws of the Corporation, subject to the power of the stockholders to alter or repeal the by-laws made by the Board of Directors. Such action by the Board of Directors shall require the affirmative vote of a majority of the directors then in office at any regular or special meeting of the Board of Directors. Such action by the stockholders shall require the affirmative vote of the holders of a majority of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the preferred stock as may be required by the provisions of any series thereof. NINTH: The personal liability of the directors and officers of the Corporation for monetary damages shall be eliminated to the fullest extent permitted by the General Corporation Law of the Commonwealth of Puerto Rico as it exists on the effective date of this Certificate of 5 5 Incorporation or as such law may be thereafter in effect. No amendment, modification or repeal of this Article NINTH shall adversely affect the rights provided hereby with respect to any claim, issue or matter in any proceeding that is based in any respect on any alleged action or failure to act prior to such amendment, modification or repeal. TENTH: The affirmative vote of the holders of not less than seventy- five percent (75%) of the total number of outstanding shares of the Corporation shall be required to amend this Article TENTH to the extent that such amendment is not approved by eighty percent (80%) of the Corporation's Board of Directors then in office; to approve any Business Combination for which stockholder approval is required by applicable law to the extent that such Business Combination is not approved by eighty percent (80%) of the Corporation's Board of Directors then in office; or to approve the voluntary dissolution of the Corporation to the extent that such dissolution is not approved by eighty percent (80%) of the Corporation's Board of Directors then in office, notwithstanding that applicable law would otherwise permit any of the above with the approval of fewer shares or without the approval of any shares. For purposes of this Article TENTH, the term "Business Combination" shall mean: (a) a merger, reorganization, or consolidation in which the Corporation is a constituent corporation; or (b) the sale, lease, or hypothecation of substantially all the assets of the Corporation. EX-4.1 4 CERTIFICATE OF DESIGNATION - SERIES A PREF STOCK 1 EXHIBIT 4.1 ORIENTAL FINANCIAL GROUP INC. CERTIFICATE OF DESIGNATION FOR THE PREFERRED STOCK PRICING COMMITTEE __% NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A Pursuant to Article 5.01 of the General Corporation Law of the Commonwealth of Puerto Rico, the undersigned, Jose Enrique Fernandez and Carlos O. Souffront, as Chairman of the Board of Directors, President and Chief Executive Officer, and as Secretary, respectively, of Oriental Financial Group Inc. (the "Corporation"), a Puerto Rico corporation, HEREBY CERTIFY that, pursuant to the authority conferred upon the Board of Directors by the Corporation's Certificate of Incorporation, as amended, and resolutions adopted by the Board of Directors creating a committee thereof known as the "Preferred Stock Pricing Committee," the Preferred Stock Pricing Committee on _________, 1999 duly adopted the following resolutions creating a series of _________ shares of Preferred Stock designated as the "___% Noncumulative Monthly Income Preferred Stock, Series A," and that such resolutions have not been modified or rescinded and remain in full force and effect: "RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation and delegated to the Preferred Stock Pricing Committee in accordance with the provisions of the Corporation's Certificate of Incorporation, as amended, a series of Preferred Stock of the Corporation be and it hereby is created. FURTHER RESOLVED, that the Preferred Stock Pricing Committee designated by the Board of Directors has determined that the preferences and relative, participating, optional or other special rights of the shares of such series of Preferred Stock, and the qualifications, limitations or restrictions thereof, as stated and expressed herein, are under the circumstances prevailing on the date hereof fair and equitable to all the existing shareholders of the Corporation. 2 FURTHER RESOLVED, that the designation and amount of such series and the voting powers, preferences and relative, participating, optional or other special rights of the shares of such series of Preferred Stock, and the qualifications, limitations or restrictions thereof are as follows: A. DESIGNATION AND AMOUNT The shares of such series of Preferred Stock shall be designated as the "__% Noncumulative Monthly Income Preferred Stock, Series A" (hereinafter called the "Series A Preferred Stock"), and the number of authorized shares constituting such series shall be _________. B. DIVIDENDS 1. Holders of record of the Series A Preferred Stock (the "Holders") will be entitled to receive, when, as and if declared by the Board of Directors, out of funds of the Corporation legally available therefor, noncumulative cash dividends at the annual rate per share of ___% of their liquidation preferences, or $______ per share per month, with each aggregate payment made to each record holder of the Series A Preferred Stock being rounded to the next lowest cent. 2. Dividends on the Series A Preferred Stock will accrue from their date of original issuance and will be payable (when, as and if declared by the Board of Directors out of funds of the Corporation legally available therefor) monthly in arrears in United States dollars commencing on _____ __, 1999, and on the last day of each calendar month of each year thereafter to the holders of record of the Series A Preferred Stock as they appear on the books of the Corporation on the fifteenth day of the month containing the relevant date of payment. In the case of the dividend payable on _____ __, 1999, such dividend shall cover the period from the date of issuance of the Series A Preferred Stock to ______ __, 1999. In the event that any date on which dividends are payable is not a Business Day, then payment of the dividend payable on such date will be made on the next succeeding Business Day without any interest or other payment in respect of any such delay, except that, if such Business Day is in the next succeeding calendar year, such payment will be made on the Business Day immediately preceding the relevant date of payment, in each case with the same force and effect as if made on such date. A "Business Day" is a day other than a Saturday, Sunday or a general bank holiday in San Juan, Puerto Rico, or New York, New York. 3 3. Dividends on the Series A Preferred Stock will be noncumulative. The Corporation is not obligated or required to declare or pay dividends on the Series A Preferred Stock, even if it has funds available for the payment of such dividends. If the Board of Directors or an authorized committee thereof does not declare a dividend payable on a dividend payment date in respect of the Series A Preferred Stock, then the holders of such Series A Preferred Stock shall have no right to receive a dividend in respect of the monthly dividend period ending on such dividend payment date and the Corporation will have no obligation to pay the dividend accrued for such monthly dividend period or to pay any interest thereon, whether or not dividends on such Series A Preferred Stock are declared for any future monthly dividend period. 4. The amount of dividends payable for any monthly dividend period will be computed on the basis of twelve 30-day months and a 360-day year. The amount of dividends payable for any period shorter than a full monthly dividend period will be computed on the basis of the actual number of days elapsed in such period. 5. Subject to any applicable fiscal or other laws and regulations, each dividend payment will be made by dollar check drawn on a bank in New York, New York, or San Juan, Puerto Rico, and mailed to the record holder thereof at such holder's address as it appears on the register for such Series A Preferred Stock. 6. So long as any shares of the Series A Preferred Stock remain outstanding, the Corporation shall not declare, set apart or pay any dividend or make any other distribution of assets (other than dividends paid or other distributions made in stock of the Corporation ranking junior to the Series A Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Corporation) on, or redeem, purchase, set apart or otherwise acquire (except upon conversion or exchange for stock of the Corporation ranking junior to the Series A Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Corporation), shares of common stock or of any other class of stock of the Corporation ranking junior to the Series A Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation, unless (i) all accrued and unpaid dividends on the Series A Preferred Stock for the twelve monthly dividend periods ending on the immediately preceding dividend payment date shall have been paid or are paid contemporaneously and the full monthly dividend on the Series A 4 -4- Preferred Stock for the then current month has been or is contemporaneously declared and paid or declared and set apart for payment, and (ii) the Corporation has not defaulted in the payment of the redemption price of any shares of Series A Preferred Stock called for redemption. 7. When dividends are not paid in full on the Series A Preferred Stock and any other shares of stock of the Corporation ranking on a parity as to the payment of dividends with the Series A Preferred Stock, all dividends declared upon the Series A Preferred Stock and any such other shares of stock of the Corporation will be declared pro rata so that the amount of dividends declared per share on the Series A Preferred Stock and any such other shares of stock will in all cases bear to each other the same ratio that the full dividend on the Series A Preferred Stock for the then-current dividend period (which shall not include any accumulation in respect of unpaid dividends for prior dividend periods) and full dividends, including required or permitted accumulations, if any, on such other classes of equally ranked stock, bear to each other. 8. Holders of record of the Series A Preferred Stock will not be entitled to any dividend, whether payable in cash, property or stock, in excess of the dividends provided for herein on the shares of Series A Preferred Stock. C. CONVERSION The Series A Preferred Stock will not be convertible into or exchangeable for any other securities of the Corporation. D. REDEMPTION AT THE OPTION OF THE CORPORATION 1. The shares of the Series A Preferred Stock are not redeemable prior to _______ __, 2004. On and after that date, the shares of the Series A Preferred Stock will be redeemable in whole or in part from time to time at the option of the Corporation, with the consent of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") to the extent required by Section D 8 below, upon not less than thirty nor more than sixty days' notice by mail, at the redemption prices set forth below, during the twelve month periods beginning on ________ __, 2004 of the years set forth below, plus accrued and unpaid dividends to the date fixed for redemption. 5 -5-
YEAR REDEMPTION PRICE ---- ---------------- 2004 $25.50 2005 $25.25 2006 and thereafter $25.00
2. In the event that less than all of the outstanding shares of the Series A Preferred Stock are to be redeemed in any redemption at the option of the Corporation, the total number of shares to be redeemed in such redemption shall be determined by the Board of Directors and the shares to be redeemed shall be allocated pro rata or by lot as may be determined by the Board of Directors or by such other method as the Board of Directors may approve and deem equitable, including any method to conform to any rule or regulation of any national or regional stock exchange or automated quotation system upon which the shares of the Series A Preferred Stock may at the time be listed or eligible for quotation. 3. Notice of any proposed redemption shall be given by the Corporation by mailing a copy of such notice to the holders of record of the shares of Series A Preferred Stock to be redeemed, at their address of record, not more than sixty nor less than thirty days prior to the redemption date. The notice of redemption to each holder of shares of Series A Preferred Stock shall specify the number of shares of Series A Preferred Stock to be redeemed, the redemption date and the redemption price payable to such holder upon redemption, and shall state that from and after said date dividends thereon will cease to accrue. If less than all the shares owned by a holder are then to be redeemed at the option of the Corporation, the notice shall also specify the number of shares of Series A Preferred Stock which are to be redeemed and the numbers of the certificates representing such shares. Any notice which is mailed as herein provided shall be conclusively presumed to have been duly given, whether or not the stockholder receives such notice; and failure duly to give such notice by mail, or any defect in such notice, to the holders of any stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series A Preferred Stock. 4. Notice having been mailed as aforesaid, from and after the redemption date (unless default be made in the payment of the redemption price for any shares to be redeemed), all dividends on 6 -6- the shares of Series A Preferred Stock called for redemption shall cease to accrue and all rights of the holders of such shares as stockholders of the Corporation by reason of the ownership of such shares (except the right to receive the redemption price, on presentation and surrender of the respective certificates representing the redeemed shares), shall cease on the redemption date, and such shares shall not after the redemption date be deemed to be outstanding. In case less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued without cost to the holder thereof representing the unredeemed shares. 5. At its option, the Corporation may, on or prior to the redemption date, irrevocably deposit the aggregate amount payable upon redemption of the shares of the Series A Preferred Stock to be redeemed with a bank or trust company designated by the Board of Directors having its principal office in New York, New York, San Juan, Puerto Rico, or any other city in which the Corporation shall at that time maintain a transfer agency with respect to its capital stock, and having a combined capital and surplus (as shown by its latest published statement) of at least $50,000,000 (hereinafter referred to as the "Depositary"), to be held in trust by the Depositary for payment to the holders of the shares of the Series A Preferred Stock then to be redeemed. If such deposit is made and the funds so deposited are made immediately available to the holders of the shares of the Series A Preferred Stock to be redeemed, the Corporation shall thereupon be released and discharged (subject to the provisions of Section D 6) from any obligation to make payment of the amount payable upon redemption of the shares of the Series A Preferred Stock to be redeemed, and the holders of such shares shall look only to the Depositary for such payment. 6. Any funds remaining unclaimed at the end of two years from and after the redemption date in respect of which such funds were deposited shall be returned to the Corporation forthwith and thereafter the holders of shares of the Series A Preferred Stock called for redemption with respect to which such funds were deposited shall look only to the Corporation for the payment of the redemption price thereof. Any interest accrued on any funds deposited with the Depositary shall belong to the Corporation and shall be paid to it from time to time on demand. 7. Any shares of the Series A Preferred Stock which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series, until such shares are once more 7 -7- designated as part of a particular series by the Board of Directors. 8. To the extent required to have the Series A Preferred Stock treated as Tier 1 capital for bank regulatory purposes or otherwise required by applicable regulations of the Federal Reserve Board, the shares of Series A Preferred Stock may not be redeemed by the Corporation without the prior consent of the Federal Reserve Board. E. LIQUIDATION PREFERENCE 1. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the then record holders of shares of Series A Preferred Stock will be entitled to receive out of the assets of the Corporation available for distribution to shareholders, before any distribution is made to holders of common stock or any other equity securities of the Corporation ranking junior upon liquidation to the Series A Preferred Stock, distributions upon liquidation in the amount of $____ per share plus an amount equal to any accrued and unpaid dividends for the current monthly dividend period to the date of payment. Such amount shall be paid to the holders of the Series A Preferred Stock prior to any payment or distribution to the holders of the common stock of the Corporation or of any other class of stock or series thereof of the Corporation ranking junior to the Series A Preferred Stock in respect of dividends or as to the distribution of assets upon liquidation. 2. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to the Series A Preferred Stock and any other shares of stock of the Corporation ranking as to any such distribution on a parity with the Series A Preferred Stock are not paid in full, the holders of the Series A Preferred Stock and of such other shares will share ratably in any such distribution of assets of the Corporation in proportion to the full liquidation preferences to which each is entitled. After payment of the full amount of the liquidation preference to which they would otherwise be entitled, the holders of shares of Series A Preferred Stock will not be entitled to any further participation in any distribution of assets of the Corporation. 3. Neither the consolidation or merger of the Corporation with any other corporation, nor any sale, lease or conveyance of all or any part of the property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation. 8 -8- F. VOTING RIGHTS 1. Except as described in this Section F, or except as required by applicable law, holders of the Series A Preferred Stock will not be entitled to receive notice of or attend or vote at any meeting of stockholders of the Corporation. 2. If the Corporation does not pay dividends in full on the Series A Preferred Stock for eighteen monthly dividend periods, whether consecutive or not, the holders of outstanding shares of the Series A Preferred Stock, together with the holders of any other shares of stock of the Corporation having the right to vote for the election of directors solely in the event of any failure to pay dividends, acting as a single class without regard to series, will be entitled, by written notice to the Corporation given by the holders of a majority in liquidation preference of such shares or by ordinary resolution passed by the holders of a majority in liquidation preference of such shares present in person or by proxy at a separate general meeting of such holders convened for the purpose, to appoint two additional members of the Board of Directors, to remove any such member from office and to appoint another person in place of such member. Not later than 30 days after such entitlement arises, if written notice by a majority of the holders of such shares has not been given as provided for in the preceding sentence, the Board of Directors or an authorized committee thereof will convene a separate general meeting for the above purpose. If the Board of Directors or such authorized committee fails to convene such meeting within such 30-day period, the holders of 10% of the outstanding shares of the Series A Preferred Stock and any such other stock will be entitled to convene such meeting. The provisions of the Corporation's Certificate of Incorporation, as amended, and By-laws of the Corporation relating to the convening and conduct of general meetings of stockholders will apply with respect to any such separate general meeting. Any member of the Board of Directors so appointed shall vacate office if, following the event which gave rise to such appointment, the Corporation shall have resumed the payment of dividends in full on the Series A Preferred Stock and each such other series of stock for twelve consecutive monthly dividend periods. 3. Any variation or abrogation of the rights, preferences and privileges of the Series A Preferred Stock by way of amendment of the Corporation's Certificate of Incorporation, as amended, or otherwise (including, without limitation, the authorization or issuance of any shares of the Corporation ranking, as to dividend rights or rights on liquidation, winding up and dissolution, senior to the Series A Preferred Stock) shall 9 -9- not be effective (unless otherwise required by applicable law) except with the consent in writing of the holders of at least two thirds of the outstanding aggregate liquidation preference of the outstanding shares of the Series A Preferred Stock or with the sanction of a special resolution passed at a separate general meeting by the holders of at least two thirds of the aggregate liquidation preference of the outstanding shares of the Series A Preferred Stock. Notwithstanding the foregoing, the Corporation may, without the consent or sanction of the holders of the Series A Preferred Stock, authorize and issue shares of the Corporation ranking, as to dividend rights and rights on liquidation, winding up and dissolution, on a parity with or junior to the Series A Preferred Stock. 4. No vote of the holders of the Series A Preferred Stock will be required for the Corporation to redeem or purchase and cancel the Series A Preferred Stock in accordance with the Restated Certificate of Incorporation of the Corporation. 5. The Corporation will cause a notice of any meeting at which holders of any series of Preferred Stock are entitled to vote to be mailed to each record holder of such series of Preferred Stock. Each such notice will include a statement setting forth (i) the date of such meeting, (ii) a description of any resolution to be proposed for adoption at such meeting on which such holders are entitled to vote, and (iii) instructions for deliveries of proxies. 6. Except as set forth in this Section F, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote as set forth herein) for taking any corporate action. G. RANK The Series A Preferred Stock will, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank (i) senior to all classes of common stock of the Corporation and to all other equity securities issued by the Corporation the terms of which specifically provide that such equity securities will rank junior to the Series A Preferred Stock (or to a number of series of Preferred Stock which includes the Series A Preferred Stock); (ii) on a parity with all other equity securities issued by the Corporation the terms of which specifically provide that such equity securities will rank on a parity with the Series A Preferred Stock (or with a number of series of Preferred Stock which includes the Series A Preferred 10 -10- Stock); and (iii) junior to all equity securities issued by the Corporation the terms of which specifically provide that such equity securities will rank senior to the Series A Preferred Stock (or to a number of series of Preferred Stock which includes the Series A Preferred Stock). For this purpose, the term "equity securities" does not include debt securities convertible into or exchangeable for equity securities. H. FORM OF CERTIFICATE FOR SERIES A PREFERRED STOCK; TRANSFER AND REGISTRATION 1. The Series A Preferred Stock shall be issued in registered form only. The Corporation may treat the record holder of a share of Series A Preferred Stock, including the Depository Trust Company and its nominee and any other holder that holds such share on behalf of any other person, as such record holder appears on the books of the registrar for the Series A Preferred Stock, as the sole owner of such share for all purposes. 2. The transfer of a share of Series A Preferred Stock may be registered upon the surrender of the certificate evidencing the share of Series A Preferred Stock to be transferred, together with the form of transfer endorsed on it duly completed and executed, at the office of the transfer agent and registrar. 3. Registration of transfers of shares of Series A Preferred Stock will be effected without charge by or on behalf of the Corporation, but upon payment (or the giving of such indemnity as the transfer agent and registrar may require) in respect of any tax or other governmental charges which may be imposed in relation to it. 4. The Corporation will not be required to register the transfer of a share of Series A Preferred Stock after such share has been called for redemption. I. REPLACEMENT OF LOST CERTIFICATES If any certificate for a share of Series A Preferred Stock is mutilated or alleged to have been lost, stolen or destroyed, a new certificate representing the same share shall be issued to the holder upon request subject to delivery of the old certificate or, if alleged to have been lost, stolen or destroyed, compliance with such conditions as to evidence, indemnity and the payment of out-of-pocket expenses of the Corporation in connection with the request as the Board of Directors may determine. 11 -11- J. NO PREEMPTIVE RIGHTS Holders of the Series A Preferred Stock will have no preemptive or preferential rights to purchase any securities of the Corporation. K. NO REPURCHASE AT THE OPTION OF HOLDERS; MISCELLANEOUS Holders of Series A Preferred Stock will have no right to require the Corporation to redeem or repurchase any shares of Series A Preferred Stock, and the shares of Series A Preferred Stock are not subject to any sinking fund or similar obligation. The Corporation may, at its option, purchase shares of the Series A Preferred Stock from holders thereof from time to time, by tender, in privately negotiated transactions or otherwise." IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this Certificate to be signed by its Chairman, President and Chief Executive Officer and by its Secretary, this 30th day of March, 1999. ORIENTAL FINANCIAL GROUP INC. By: ----------------------------- Jose Enrique Fernandez Chairman of the Board of Directors, President and [CORPORATE SEAL] Chief Executive Officer By: ----------------------------- Carlos O. Souffront Secretary EX-4.2 5 FORM OF SERIES A PREFERRED STOCK CERTIFICATE 1 EXHIBIT 4.2 CERTIFICATE NUMBER OF SHARES NO. ------- ---------------- ORIENTAL FINANCIAL GROUP INC. Incorporated under the Laws of the Commonwealth of Puerto Rico ___% NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A ($1.00 PAR VALUE PER SHARE) This is to certify that ______________________ is the registered holder of ____________________ (_________) of fully paid and non-assessable shares of Noncumulative Monthly Income Preferred Stock, Series A of Oriental Financial Group Inc. (the "Company"), transferable only on the books of the Company by the holder hereof in person or by its duly authorized attorney upon surrender of this Certificate properly endorsed. Witness the seal of the Company and the signatures of its duly authorized officers. Dated: ______________ ORIENTAL FINANCIAL GROUP INC. [CORPORATE SEAL] ----------------------------- President and Chief Executive Officer ----------------------------- Secretary 2 ORIENTAL FINANCIAL GROUP INC. The shares represented by this Certificate are subject to limitation and restrictions as set forth in the Amended and Restated Certificate of Incorporation and By-laws of the Company, as from time to time amended. The Amended and Restated Certificate of Incorporation is on file in the office of the Secretary of State of the Commonwealth of Puerto Rico, San Juan, Puerto Rico, and the Amended and Restated Certificate of Incorporation and the By-laws are on file with the Secretary of the Company at the Company's principal offices. The Amended and Restated Certificate of Incorporation of the Company authorizes the Company to issue more than one class of stock which may be issued in one or more series. The Company will furnish to any stockholder upon request and without charge a full statement of the powers, designation, preferences and relative participating, optional or other special rights of the __% Noncumulative Monthly Income Preferred Stock, Series A, evidenced by this Certificate and of each other class of stock or shares which the Company is authorized to issue and the qualifications, limitations or restrictions of such preferences and rights. Any request should be made with the Secretary of the Company. For value received, _________________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - - - - - - - - - - - - - [ ] - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Shares of the __% Noncumulative Monthly Income Preferred Stock, Series A, represented by this Certificate, and do hereby irrevocably constitute and appoint - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Attorney to transfer the said stock on the books of the Company with full power of substitution in the premises. Dated: ________ - - - - - - - - - - - - - - - NOTICE: THE SIGNATURE(S) OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAMES(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ENLARGEMENT OR ANY CHANGE WHATSOEVER. EX-5 6 OPINION REGARDING LEGALITY OF MCCONNELL VALDES 1 EXHIBIT 5 April 2, 1999 Oriental Financial Group Inc. Hato Rey Tower 268 Munoz Rivera Avenue Suite 501 San Juan, Puerto Rico 00918 RE: NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A Ladies and Gentlemen: In connection with the registration under the Securities Act of 1993, as amended (the "Act"), of up to 1,207,000 shares (the "Shares") of Noncumulative Monthly Income Preferred Stock, Series A, $1.00 par value per share, of Oriental Financial Group Inc. (the "Company") to be registered under the Act pursuant to the Company's Registration Statement on Form S-3 filed with the Securities and Exchange Commission on April 2, 1999 (the "Registration Statement"), we, as your counsel, have examined such documents, corporate records and other instruments, and such questions of law, as we have considered necessary or appropriate for the purpose of this opinion. Upon the basis of such examination, we are of the opinion that when the Registration Statement shall have been declared effective, the certificate of resolution containing the designation of the 2 Oriental Financial Group Inc. April 2, 1999 Page 2 relative rights and preferences of the Shares has been duly filed with the Department of State of the Commonwealth of Puerto Rico, the Shares have been issued in accordance with the authorization of the Board of Directors of the Company, and when the Shares have been duly countersigned by the Company's transfer agent and registrar and sold and delivered as contemplated by the Registration Statement and the Underwriting Agreement referred to therein, the Shares will be duly authorized and validly issued, fully-paid and nonassessable when delivered against payment therefor. We are members of the Bar of the Commonwealth of Puerto Rico. The opinions expressed herein are limited to the laws of the Commonwealth of Puerto Rico and any applicable federal laws. We do not purport to be experts in, or to render any opinions with respect to the laws of any state or jurisdiction other than the laws of the Commonwealth of Puerto Rico and the federal laws of the United States of America. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading "Legal Matters" in the Prospectus contained in the Registration Statement. In giving the foregoing consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, /s/ McConnell Valdes --------------------------- EX-8 7 OPINION REGARDING TAX MATTERS OF MCCONNELL VALDES 1 EXHIBIT 8 April 2, 1999 Oriental Financial Group Inc. Hato Rey Tower 268 Munoz Rivera Avenue Suite 501 San Juan, Puerto Rico 00918 RE: NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A Ladies and Gentlemen: We have acted as counsel for Oriental Financial Group Inc. (the "Company") in connection with a Registration Statement on Form S-3, filed with the Securities and Exchange Commission on April 2, 1999 (the "Registration Statement"), for the purpose of registering under the Securities Act of 1933, as amended, up to 1,207,000 shares of Noncumulative Monthly Income Preferred Stock, Series A, $1.00 par value per share, of the Company. We have examined the prospectus contained in the Registration Statement (the "Prospectus") and have reviewed the discussion of certain United States and Puerto Rico income tax considerations of the proposed offering described in the Prospectus (the "Tax Discussion") appearing under the captions "Taxation," "Puerto Rico Taxation" and "United States Taxation." We have also reviewed such 2 Oriental Financial Group Inc. April 2, 1999 Page 2 other documents and instruments and have examined such questions of law as we have considered necessary or appropriate for the purpose of this opinion. In addition, we have relied on certificates of officers of the Company as to certain factual matters. The Tax Discussion represents our opinion regarding the material United States and Puerto Rico tax consequences described therein. Our opinion is based upon the review of the Prospectus and of applicable United States and Puerto Rico income tax statutes, regulations, rulings and decisions, as now in full force and effect. A change in any of the foregoing could require a change in our opinion. In addition, our opinion pertains only to the accuracy of the statement of law contained in the Tax Discussion. As to statements of fact, we are relying upon your representation that such factual statements are true and accurate as of the date hereof. We are members of the Bar of the Commonwealth of Puerto Rico. The opinions expressed herein are limited to the laws of the Commonwealth of Puerto Rico and any applicable federal laws. We do not purport to be experts in, or to render any opinions with respect to the laws of any state or jurisdiction other than the laws of the Commonwealth of Puerto Rico and the federal laws of the United States of America. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading "Taxation" in the Prospectus contained in the Registration Statement. In giving the foregoing consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, /s/ McConnell Valdes EX-12 8 STATEMENT RE: COMPUTATION OF CONSOLIDATED RATIO 1 EXHIBIT 12 ORIENTAL FINANCIAL GROUP INC. COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Dollars in Thousands)
SIX MONTH PERIOD ENDED DECEMBER 31, YEAR ENDED JUNE 30, ------------------ --------------------------------------------------- 1998 1997 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- ------- ------- EARNINGS Net Income Before Income Taxes $14,561 $11,978 $25,260 $19,662 $18,307 $15,012 $12,852 Plus: Interest Expense 31,988 27,955 58,139 45,098 37,694 30,423 22,843 Plus: Estimate of Interest Component within Rental Expense 142 123 254 212 173 153 123 ------- ------- ------- ------- ------- ------- ------- 46,691 40,056 83,653 64,972 56,174 45,588 35,818 Less: Interest on Deposits 14,541 12,753 26,197 21,012 17,386 11,668 7,531 ------- ------- ------- ------- ------- ------- ------- Earnings Less Interest on Deposits $32,150 $27,303 $57,456 $43,960 $38,788 $33,920 $28,287 ======= ======= ======= ======= ======= ======= ======= FIXED CHARGES INCLUDING INTEREST ON DEPOSITS Interest Expense 31,988 27,955 58,139 45,098 37,694 30,423 22,843 Plus: Estimate of Interest Component within Rental Expense 142 123 254 212 173 153 123 ------- ------- ------- ------- ------- ------- ------- Fixed Charges Including Interest on Deposits $32,130 $28,078 $58,393 $45,310 $37,867 $30,576 $22,966 ======= ======= ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges Including Interest on Deposits 1.45x 1.43x 1.43x 1.43x 1.48x 1.49x 1.56x FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS Interest Expense $31,988 $27,955 $58,139 $45,098 $37,694 $30,423 $22,843 Plus: Estimate of Interest Component within Rental Expense 142 123 254 212 173 163 123 Less: Interest on Deposits 14,541 12,753 26,197 21,012 17,386 11,668 7,531 ------- ------- ------- ------- ------- ------- ------- Fixed Charges Excluding Interest on Deposits $17,589 $15,325 $32,196 $24,298 $20,481 $18,908 $15,435 ======= ======= ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges Excluding Interest on Deposits 1.83x 1.78x 1.78x 1.81x 1.89x 1.79x 1.83x
EX-23.1 9 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.1 PRICEWATERHOUSECOOPERS (LOGO) PRICEWATERHOUSECOOPERS LLP PO Box 363566 San Juan PR 00936-3566 Telephone (787)754-9090 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 of our report dated July 31, 1998, which appears on page 34 of the 1998 Annual Report to Shareholders of Oriental Financial Group, which is incorporated by reference in Oriental Financial Group's Annual Report on Form 10-K for the year ended June 30, 1998. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP San Juan, Puerto Rico April 2, 1999 -----END PRIVACY-ENHANCED MESSAGE-----